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CANADA
REPORT OF THE AUDITOR GENERAL
TO THE HOUSE OF COMMONS
for the
FISCAL YEAR ENDED MARCH 31
1964
W* 1
CANADA
REPORT OF THE AUDITOR GENERAL
TO THE HOUSE OF COMMONS
for the
FISCAL YEAR ENDED MARCH 31
1964
95480—1
© Crown Copyrights reserved
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Catalogue No. FA1-1964
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1964
964703
TABLE OF CONTENTS
Page
Introduction 1
Standing Committee on Public Accounts 1
Summary of Employees Authorized for the Public Service 2
Scope of the Audit 3
Findings of Royal Commission on Government Organization 4
Form and Content of the Estimates 5
Form and Content of the Public Accounts 5
Legal Adviser to the Auditor General 5
Office of the Auditor General 6
Summary of Expenditure and Revenue 7
Expenditure 7
Agriculture 9
Canadian Broadcasting Corporation 9
Citizenship and Immigration 9
External Affairs 9
Finance 9
Labour 9
Mines and Technical Surveys 10
National Defence 10
National Health and Welfare 10
National Revenue 10
Northern Affairs and National Resources 10
Post Office 10
Public Works 10
Trade and Commerce 11
Transport 11
Veterans Affairs 11
Other departments 11
Revenue 12
Excise taxes 13
Customs duties 13
Excise duties 13
Return on investments 14
Net postal revenue 15
Other non-tax revenues 15
Comments on Expenditure and Revenue Transactions 16
Governor General's special warrants 16
Prairie Farm Emergency Fund 17
Misapplication of public funds at Indian Agency 19
Payment for loss of salary pending appointment to a position in the civil service 19
Defalcation by locally-engaged employee in Canberra, Australia 20
Government contributions not made to the Public Service Superannuation Account 2 1
Errors in Public Service Superannuation Account pension and contribution
calculations 22
Deletion of debt without collection effort 22
iii
95480—11
Page
Subsidization of Fishermen's Indemnity Plan 23
Winter house building program 24
Questionable charge to Vote 70 of the Department of Mines and Technical Surveys 24
National Defence administrative regulations and practices 25
Lease termination payments 26
Educational costs incurred by the Department of National Defence 26
Construction of destroyer escort vessels 26
Equipment disposed of in error 27
Medical fees improperly retained by a Service medical officer 27
Town of Oromocto, N. B 27
Military assistance to the United Nations and Indo-China Truce Commissions . 29
Pension awards effective at early age 29
Discretionary awards of Service pensions 30
Questionable pensionable service 30
Unemployment Assistance 31
Provincial payments to federal hospitals under the Hospital Insurance and
Diagnostic Services Act 32
Payment of duty on coasting trade vessel deferred 33
Remission of duties on certain motor vehicles and parts 35
Refund of sales tax on materials used in construction of certain buildings 35
Refunds of duties and taxes on estimated basis 36
Refund of duty paid on goods diverted to use other than that for which they
were imported 36
Possible loss of revenue when goods lose tax-exempt status 37
Loss on buildings abandoned 37
Drawback paid on goods destroyed after release from Customs 38
Waiving of postage charges 39
Departmental decision not to dismiss an employee 40
Second class mail 40
Defalcations in the Malartic area of Quebec 41
Cost of plans for administration building for Department of Agriculture 42
Accounting for advance planning of construction projects 42
Damage to Coast Guard vessel 43
Financial consequence of faulty ship design 43
Repairs and alterations to Canadian Coast Guard ships 44
Contracts for cleaning of public premises 44
Federal contribution to cost of ferry vessel 45
Defalcation at Gander International Airport 47
Awards under the Pension Act 47
Civilian war pensions and allowances 48
War veterans allowances 48
Unpaid accounts carried forward to new fiscal year 50
Losses reported in the Public Accounts 50
Non-productive payments 51
Summary of Assets and Liabilities 51
Assets 52
Current assets 52
Advances to the Exchange Fund Account 53
Sinking fund and other investments held for retirement of unmatured debt 53
Loans to and investments in Crown corporations 54
Loans to national governments 55
Other loans and investments 56
iv
Page
Securities held in trust 57
Deferred charges 57
Suspense accounts 58
Inactive loans and investments 58
Liabilities 59
Current and demand liabilities 59
Deposit and trust accounts 60
Annuity, insurance and pension accounts 61
Undisbursed balances of appropriations to special accounts 63
Deferred credits 64
Suspense accounts 64
Unmatured debt 65
Net Debt 66
Contingent Liabilities 66
Comments on Assets and Liabilities 67
Accounts receivable 67
Accounts receivable — Department of National Revenue 70
Agricultural Commodities Stabilization Account 72
Loans to the Town of Oromocto, N. B 72
Unamortized portion of actuarial deficiencies 72
Cheque Adjustment Suspense 73
Public Service Superannuation Account 74
Canadian Forces Superannuation Account 74
Suspense Accounts: P.F.RA. Community Pastures — payments to municipalities 74
Crown Corporations 75
Atomic Energy of Canada Limited 77
Canadian Arsenals Limited 79
Canadian Broadcasting Corporation 81
Canadian Commercial Corporation 86
Canadian Corporation for the 1967 World Exhibition 87
Canadian National (West Indies) Steamships, Limited 92
Canadian Overseas Telecommunication Corporation 92
Canadian Patents and Development Limited 94
Centennial Commission 95
Cornwall International Bridge Company Limited 96
Crown Assets Disposal Corporation 97
Defence Construction (1951) Limited 98
Eldorado Aviation Limited 99
Eldorado Mining and Refining Limited 100
Export Credits Insurance Corporation 102
Farm Credit Corporation 104
The National Battlefields Commission 106
National Capital Commission 107
National Harbours Board 109
Northern Canada Power Commission 113
Northern Ontario Pipe Line Crown Corporation 114
Northern Transportation Company Limited 115
Park Steamship Company Limited 116
Polymer Corporation Limited and subsidiary companies 117
The St. Lawrence Seaway Authority 118
The Seaway International Bridge Corporation, Ltd 123
Page
Departmental Operating Activities 124
Agricultural Products Board 125
Agricultural Stabilization Board 126
Airport operations 128
Board of Grain Commissioners for Canada 129
Canadian Government Elevators 130
National Film Board 131
Post Office activities 133
Public Printing and Stationery activities 133
Royal Canadian Mint 135
Special Audits and Examinations 137
Army Benevolent Fund Board 137
Atlantic Development Board 137
The Canada Council 138
The Custodian 140
Economic Council of Canada 142
Exchange Fund Account 142
Municipal Development and Loan Board 145
National Gallery of Canada 145
National Productivity Council 146
Public Printing and Stationery stores 147
The Queen Elizabeth II Canadian Fund to Aid in Research on the Diseases
of Children 148
Royal Canadian Mint stocks 149
Unemployment Insurance Fund 149
Yukon Territorial Government 151
Appendices
1. Recommendations and Observations by the Standing Committee on Public Accounts
not yet implemented or dealt with by Executive Action 156
2. Non-Productive Payments noted in the Audit for the Fiscal Year ended March 31, 1964 168
3. Summary of Employees of the Public Service, by Departments, Crown Corporations
and Other Instrumentalities Authorized and on Strength as at March 31, 1964,
with comparable figures as at March 31, 1963 178
4. Summary of Expenditure by Standard Objects for the Fiscal Year ended March 31,
1964, with comparable figures for the preceding fiscal year 186
Exhibits
(as published in the Public Accounts)
1. Statement of Expenditure and Revenue for the Fiscal Year ended March 31, 1964. . . 188
2. Statement of Assets and Liabilities as at March 31, 1964 190
3. Summary of Appropriations, Expenditures and Unexpended Balances by Departments
for the Fiscal Year ended March 31, 1964 192
4. Summary of Revenue by Main Classifications and Departments for the Fiscal Year
ended March 31, 1964 193
T
HE functions and responsibilities of the Auditor General of Canada are outlined in
Part VII of the Financial Administration Act.
2. In accordance with the requirement of section 70 of the Act, a Report is now
made to the House of Commons on the results of the audit examinations for the year
ended March 31, 1964. Subsection (1) of the section reads:
"The Auditor General shall report annually to the House of Commons the results of his
examinations and shall call attention to every case in which he has observed that
(a) any officer or employee has wilfully or negligently omitted to collect or receive any
money belonging to Canada,
(6) any public money was not duly accounted for and paid into the Consolidated Revenue
Fund,
(c) any appropriation was exceeded or was applied to a purpose or in a manner not
authorized by Parliament,
(d) an expenditure was not authorized or was not properly vouched or certified,
(e) there has been a deficiency or loss through the fraud, default or mistake of any person, or
(/) a special warrant authorized the payment of any money,
and to any other case that the Auditor General considers should be brought to the notice
of the House of Commons."
3. The Statement of Expenditure and Revenue for the fiscal year ended March 31,
1964 and the Statement of Assets and Liabilities as at that date, prepared by the
Department of Finance for inclusion in the Public Accounts, have been examined and
certified by me as required by section 69 of the Financial Administration Act, subject to
my comments in this Report. Copies of these financial statements are appended as
Exhibits 1 and 2. The "Summary of Appropriations, Expenditures and Unexpended
Balances by Departments" and the "Summary of Revenue by Main Classifications and
Departments", both as included in the 1964 Public Accounts, have also been examined
and certified and copies are appended as Exhibits 3 and 4.
Standing Committee on Public Accounts
4. On October 29, 1963 the House of Commons referred my Report for the fiscal
year ended March 31, 1962 to the Public Accounts Committee. During the First Session
of the Twenty-sixth Parliament, the Committee held 13 meetings before it adjourned and
on December 19, 1963 presented its Third and Fourth Reports 1963 to the House of
Commons on its work up to that time. Following the commencement of the Second
Session, the House of Commons on May 22, 1964 again referred my 1962 Report to the
Committee together with my Report for the year ended March 31, 1963.
The Committee held its first meeting in the Second Session on May 26, 1964 when, in
accordance with its request, I submitted a follow-up report to the Committee on the action
2 AUDITOR GENERAL'S REPORT
taken on the recommendations contained in its Third and Fourth Reports 1963. In this
follow-up report, I informed the Committee that the departments and agencies concerned
had taken action on three of its ten recommendations.
The Committee held eleven meetings during the period from May 26, 1964 to
June 30, 1964, reporting thereon to the House of Commons in its Fourth Report 1964
which was presented to the House on July 28, 1964. On August 5, 1964 the Committee
presented its Fifth Report 1964 to the House covering six meetings held in the month
of July when it examined the financial statements of the Canadian Broadcasting
Corporation for its 1961-62 and 1962-63 financial years. The Committee resumed its
meetings on October 20, 1964 and on that day presented its Sixth Report 1964 to the
House. With the assistance of two sub-committees dealing with the Form and Content
of the Public Accounts and Surplus Assets Disposal, the Committee concluded its
examination of my 1962 and 1963 Reports on November 17, 1964 and presented its
Seventh and Eighth Reports 1964 to the House on December 7, 1964.
This is the first time in recent years that the Public Accounts Committee has
completed its examination of the Auditor General's Reports to the House of Commons
before a succeeding Report has been tabled. As a result, I have had the benefit of its
views on a considerable number of outstanding matters which has enabled me not only to
eliminate repetitious comment but to make timely reference throughout this Report to
matters on which the Committee expressed views.
In order to furnish a convenient reference for Members of the House, a summarized
listing (Appendix 1) has been prepared of the 50 recommendations and observations
made by the Committee in the six reports it has presented to the House during the
period November 8, 1963 to December 7, 1964 which have not yet been implemented or
otherwise dealt with by Executive action. With the exception of four from the Fourth
Report 1963 and eight which had their origin in earlier reports, these recommendations
and observations originated in reports presented to the House between July 28, 1964
and December 7, 1964. Consequently, no Executive action to implement or deal with them
was possible during the fiscal year ended March 31, 1964.
Summary of Employees Authorized for the Public Service
5. In my Reports to the House for the last several years I have referred to the fact
that the two largest items of expenditure continue to be public debt charges and civil
salaries and wages (see Appendix 4). Together they totalled $1,902 million and represented
28% of the total expenditure for the year under review. The largest of the public debt
charges, namely interest, is the subject of a detailed appendix in the Public Accounts.
With respect to civil salaries and wages, my Reports in prior years have contained a
summarized listing, as an appendix, showing the numbers of employees authorized for
the public service by departments, Crown corporations and other instrumentalities at
the close of the year under review in comparison with the numbers at the close of the
preceding year, prepared on the basis explained in the footnotes to the appendix.
AUDITOR GENERAL'S REPORT 3
The Public Accounts Committee expressed interest in this listing and in its Fourth
Report 1963 requested that the listing continue to be prepared annually and, effective
with this Report, include therein a more detailed breakdown of the various departmental
and Crown corporation establishments by divisions and sub-divisions, together with the
numbers of employees actually on strength at the close of the fiscal year, for the purpose
of showing the size of each establishment's organization on a still more informative
comparative basis.
A listing as at March 31, 1964 prepared on this basis appears in this Report as
Appendix 3.
Scope of the Audit
6. Examinations of the departmental accounts for the year ended March 31, 1964
were made in conformity with section 67 of the Financial Administration Act which reads:
"The Auditor General shall examine in such manner as he may deem necessary the
accounts relating to the Consolidated Revenue Fund and to public property and shall
ascertain whether in his opinion
(a) the accounts have been faithfully and properly kept,
(b) all public money has been fully accounted for, and the rules and procedures applied are
sufficient to secure an effective check on the assessment, collection and proper allocation
of the revenue,
(c) money has been expended for the purposes for which it was appropriated by Parliament,
and the expenditures have been made as authorized, and
(d) essential records are maintained and the rules and procedures applied are sufficient
to safeguard and control public property."
In my 1962 and 1963 Reports to the House of Commons I stated that it had not been
possible to carry forward the comprehensive audit approach to the extent outlined to the
House in my 1960 Report and to the Public Accounts Committee in 1960 and 1961
for the reason that I continued to be unable, under existing governmental recruitment
procedures, to obtain the full staff approved for my Office by the Treasury Board. I
pointed out the extent to which these recruitment difficulties were limiting the scope of
the work of the Audit Office.
In my Report last year I outlined an arrangement I had entered into on November 22,
1963 with the Chairman of the Civil Service Commission whereby agreement was reached
on the steps to be taken in the area of recruitment, selection and negotiation with
candidates for positions in the Audit Office. This arrangement was implemented in
January 1964 and is developing satisfactorily to the point where it should be possible to
increase the scope of the work of the Audit Office before the completion of the now
current fiscal year ending March 31, 1965 and to see the full effect of this improvement
in the fiscal year to commence April 1, 1965. In this connection reference is made to the
staff position given in paragraph 11.
It follows, therefore, that the limitations previously referred to in the scope of our
work have continued during the fiscal year now under review. Subject to this, our
95480—2
4 AUDITOR GENERAL'S REPORT
examinations were made in accordance with generally accepted auditing standards and
continued to include a general review of the accounting procedures and systems of
internal control together with such tests of the accounting records and other supporting
evidence as we considered necessary in the circumstances.
The attention of responsible administrative and accounting officers was directed to
transactions which, in the Audit Office view, were not in harmony with annual parlia-
mentary appropriations or continuing statutory financial directions, or which lacked
conformity with Executive orders or regulations.
Our examinations extended to all departments, Crown corporations and other
agencies of the Government of Canada, excepting those listed in paragraph 133 whose
accounts were subject to examination by other auditors.
The accounts relating to the receipts and disbursements of the Office of the Auditor
General were examined by an officer of the public service nominated for the purpose by
the Treasury Board, as required by section 75 of the Financial Administration Act. In
this connection, the Public Accounts Committee, in its Eighth Report 1964 (see
Appendix 1, item 50) has recommended that this section of the Act be amended to
provide that the receipts and disbursements of the Office of the Auditor General be
examined by a qualified person nominated by Parliament through its Standing Committee
on Public Accounts, and that such person should report thereon to the House of
Commons.
During the course of their work, members of the staff of the Audit Office were given
full access to all vouchers, records and files of the various departments, Crown corpora-
tions and other agencies. In addition, they were readily provided with all supplementary
information and explanations required. I take pleasure in expressing my appreciation for
the co-operation thus extended by departmental and Treasury officers and by the
administrative and accounting officers of Crown corporations and other agencies.
The Audit Office has addressed detailed reports to the executive boards of Crown
corporations and other agencies covering the results of its examinations during the past
year. These reports give a broad summary of the results of operations for the financial
year in comparison with previous years, and make comments and offer suggestions
regarding weaknesses in internal control and other matters noted during the course of
the audit. Where matters dealt with in these reports were considered to be of interest to
the House of Commons, references are made in the relevant sections of this Report.
Findings of Royal Commission on Government Organization
7. In my Report to the House last year I outlined my concept of the responsibilities
of the Auditor General to Parliament with regard to the findings of this Royal Commis-
sion. In its Fourth Report 1964 (see Appendix 1, item 5) the Public Accounts Committee
expressed the opinion that this concept of the responsibilities of the Auditor General is in
accord with the intent and wishes of Parliament.
During the past year considerable research and planning has been in progress under
the direction of the Secretary of the Treasury Board aimed at determining the extent to
AUDITOR GENERAL'S REPORT 5
which the recommendations of the Royal Commission can be implemented, which if
carried out effectively could eliminate many of the outdated procedures, uneconomical
operations and wasteful practices which are of concern.
The present state of these studies has led me to the conclusion that I should defer
reporting to the House on the action taken on the findings in question until the Executive
has made its final decisions on the basic or major recommendations, particularly in the
area of financial management. Only then can a proper assessment be made as to whether
or not the practices and procedures in question are to be effectively eliminated.
Form and Content of the Estimates
8. The importance of the Estimates of proposed spending being prepared and
presented to the House of Commons in the simplest and clearest manner possible is a
matter I have stressed at length in my Reports to the House since 1960. Each year I have
furnished examples of improvements I believed should be made so as to provide more
meaningful information.
In my Report last year I referred to a study of this subject being made at that time
by the Public Accounts Committee. The Committee duly reported to the House at length
on this study in its Third Report 1963 on December 19, 1963. It has since given further
attention to this important matter and reported further to the House thereon in its
Fourth Report 1964 on July 28, 1964. The recommendations and observations of the
Committee at that time will be found in Appendix 1, item 6.
Form and Content of the Public Accounts
9. In my Report last year I recommended that further consideration should be given
to summarizing or otherwise reducing the number of detailed listings presently included
in the Public Accounts. I also pointed out that additional important information
should be disclosed in the Public Accounts, and by way of examples suggested a more
informative disclosure of accounts receivable due to the Crown and the inclusion of
financial statements of departmental operating activities.
The Public Accounts Committee has requested its Sub-Committee on the Form and
Content of the Public Accounts to consider these recommendations and suggestions and
to report thereon to the main Committee. It is expected that the Committee will report
to the House on this subject shortly.
Legal Adviser to the Auditor General
10. It has been the practice for many years for the Auditor General to obtain
whatever legal opinions he required from the Deputy Minister of Justice. However, on
May 4, 1964 the Deputy Minister of Justice informed me that while he was quite willing
to advise me on matters pertaining to the operation of my Office which do not affect or
relate to any departments of the government, he felt that his primary responsibility is to
95480—21
6 AUDITOR GENERAL'S REPORT
advise the government and government departments, and that he should not advise me
with respect to transactions entered into by any government department except at the
request of that department or at the instance of the government. He felt that to advise me
directly with regard to such matters would mean that he would inevitably become involved
in a conflict of duty.
On July 14, 1964 the Deputy Minister of Justice appeared before the Public Accounts
Committee and explained how he had come to the conclusion that because the Minister
of Justice is by statute and constitutional practice the official legal adviser to the Crown
and the departments of government, he should not assume the official role of legal
adviser to the Auditor General, as he and his predecessors had done. In its Sixth Report
1964 presented to the House on October 20, 1964, the Public Accounts Committee
expressed the opinion that it is fundamental that the Auditor General should have
recourse to legal advice in the form of written opinions independent of the Crown and
executive branch of government. The Committee suggested to the Auditor General that
appropriate arrangements be made.
In view of the fact that there appeared to be no direct authority contained in the
Financial Administration Act empowering the Auditor General to employ legal services,
the Minister of Finance agreed with my suggestion that I be given the necessary authority
by the Governor in Council to engage outside solicitors for the purpose of furnishing
me with written legal opinions to the extent I require them, and Order in Council
P.C. 1964-9/1747 was issued on November 13, 1964 to provide this authority with effect
from November 1, 1964.
Following issuance of this authority, I have made appropriate arrangements with
two firms of solicitors.
Office of the Auditor General
11. The circumstances surrounding the staff shortage referred to in my Reports to
the House for 1962 and 1963 have been considered by the Public Accounts Committee
during the past year. The Committee was disturbed to find that the actual working
strength of the Office had only increased from 159 to 161 in the period November 30, 1963
to April 30, 1964 with the result that the Office remained 18 auditors short of the total
approved establishment of 179 originally agreed to with the Minister of Finance and the
Treasury Board in July 1960, or over four years ago.
A detailed assessment has been made of the staff it is estimated will be required
effective with the 1965-66 fiscal year, having regard not only to the importance of
enlarging the scope of the audit work, but also taking into account the increased size of the
government organization since July 1960 in terms of additional departments, Crown
corporations and agencies. This assessment placed staff establishment needs for 1965-66
at a figure of 220 employees which, in my opinion, is the minimum strength necessary to
carry out a basic external audit program within the framework of the existing government
organization. In order to enable recruitment to be proceeded with as soon as possible, the
Treasury Board has approved this figure with effect from October 1, 1964.
AUDITOR GEJSERAUS REPORT 7
The recommendations and observations made by the Public Accounts Committee on
this subject are contained in its Fourth Report 1964 presented to the House on July 28,
1964. It will be noted by reference to this in Appendix 1, item 16, that the Committee
recorded its belief that as an officer of Parliament the Auditor General should be free to
recruit the staff he needs in the same independent manner as do other officers of Parliament
and the Crown corporations generally. It also noted that amendments to the Financial
Administration Act are to be introduced in due course and stated that it believes
appropriate amendments should be considered at that time designed to allow the
Auditor General to appoint such officers and employees as are necessary for the proper
conduct of his Office.
Summary of Expenditure and Revenue
12. The Statement of Expenditure and Revenue for the fiscal year ended March 31,
1964, prepared by the Department of Finance for inclusion in the Public Accounts and
certified by the Auditor General as required by section 64 of the Financial Administration
Act, is reproduced as Exhibit 1 to this Report. The statement shows a deficit of $619
million for the year. By comparison, there were deficits of $692 million in the preceding
year and $791 million in 1961-62.
Expenditure
13. The Summary of Appropriations, Expenditures and Unexpended Balances by
Departments for the fiscal year ended March 31, 1964, as published in the Public
Accounts, is reproduced as Exhibit 3 to this Report and shows appropriations of $7,101
million, expenditures of $6,872 million and unexpended balances of $229 million.
14. Of the $7,101 million of appropriations available for expenditure in the year,
$2,805 million was provided by continuing statutory authorities and $4,269 million was
granted by Appropriation Acts (Nos. 1, 2, 3, 4 and 5 of 1963 and Nos. 2, 3 and 4 of 1964)
while $27 million remained available from a continuing 1962-63 appropriation (Depart-
ment of Labour Vote 32a).
Of the $6,872 million of expenditure during the year, $2,805 million (41%) was
incurred under the continuing statutory authorities, with $4,067 million (59%) being
spent under the authority of the appropriations granted for the year.
Of the $229 million of unexpended balances at the end of the year, $174 million
lapsed in compliance with section 35 of the Financial Administration Act and $55 million
of Department of Labour Votes 32d and 34c/. remained available for expenditure in
1964-65 because of the special wording of the appropriations which read as follows:
"Vote 32d — Payments in accordance with terms and conditions approved by the
Governor in Council to Provinces and in respect of Indian Bands under the Municipal
Winter Works Incentive Program during the 1963-64 and 1964-65 fiscal years of amounts
not exceeding fifty per cent of the cost of labour incurred in the period from November 1st,
1963 to such day in the fiscal year 1964-65 as may be determined by the Governor in
8 AUDITOR GENERAL'S REPORT
Council, and in the case of projects in designated development areas and as authorized by
the Minister of Labour in areas of heavy winter unemployment 60 per cent of such cost;
and to authorize payments in those fiscal years to Provinces in respect of previous Municipal
Winter Works Incentive Programs in accordance with terms and conditions approved by the
Governor in Council— $35,000,000."
"Vote 34<2 — Payments in accordance with terms and conditions approved by the
Governor in Council under the Winter House Building Program during the fiscal years
1963-64 and 1964-65 of $500 per dwelling unit substantially built during the period Decem-
ber 1st, 1963 to March 31st, 1964— $20,000,000."
15. The lapsed balances of $174 million represented 4.1% of the $4,269 million of
appropriations under Appropriation Acts. This compares with lapsed balances at the
close of the preceding year representing 2.3% of the amounts appropriated in that year
under interim supply Appropriation Acts and by Governor General's special warrants
and 6.1% of the appropriations in 1961-62. In the following cases, the lapsed balances
represented more than 10% of the appropriations under Appropriation Acts:
Lapsed balances
Appropriations Amount %
Atlantic Development Board $ 352,000 $ 156,000 44
Emergency Measures Organization 10,129,000 3,187,000 31
Industry 1,363,000 679,000 50
Justice 38,099,000 4,880,000 13
Northern Affairs and National Resources 82,278,000 9,269,000 11
Privy Council 3,229,000 346,000 11
Secretary of State 8,656,000 1,105,000 13
16. The following table summarizes the expenditure, by departments, for the fiscal
year 1963-64, in comparison with the corresponding amounts for the two previous years:
Department 1961-62 1962-63 1963-64
Agriculture $ 219,752,000 $ 183,427,000 $ 225,681,000
Canadian Broadcasting Corporation 78,161,000 80,816,000 87,576,000
Citizenship and Immigration 65,016,000 66,115,000 71,545,000
External Affairs 95,571,000 85,197,000 97,023,000
Finance 1,511,953,000 1,354,780,000 1,406,435,000
Labour 168,885,000 348,292,000 280,384,000
Mines and Technical Surveys 67,599,000 71,130,000 67,759,000
National Defence 1,626,104,000 1,571,044,000 1,683,471,000
National Health and Welfare 1,039,311,000 1,122,448,000 1,203,855,000
National Revenue 75,330,000 78,725,000 82,996,000
Northern Affairs and National Resources . . 78,369,000 86,377,000 77,334,000
Post Office 185,003,000 189,344,000 206,895,000
Public Works 183,015,000 162,730,000 167,001,000
Royal Canadian Mounted Police 60,497,000 65,424,000 66,899,000
Trade and Commerce 91,866,000 65,768,000 73,584,000
Transport 410,391,000 416,019,000 423,258,000
Veterans Affairs 333,223,000 335,602,000 333,740,000
Other departments 230,600,000 287,104,000 316,965,000
$ 6,520,646,000 $ 6,570,342,000 $ 6,872,401,000
AUDITOR GENERALS REPORT 9
Comments are made in the following paragraphs regarding the significant increases
or decreases in individual appropriations or groups of appropriations which mainly
accounted for the variation between the departmental expenditure totals listed above for
1962-63 and 1963-64.
17. Agriculture. The increase of $42 million or 23% in expenditure by this Depart-
ment in 1963-64 in comparison with the preceding year was more than accounted for by
the increase of $50 million — from $72 million to $122 million — in the amount appropriated
for the net operating loss of the Agricultural Stabilization Board, which was mainly due
to a revaluation of the inventories of commodities held at March 31, 1964 (see paragraph
163 of this Report). Other significant variations in the year were decreases of $6 million
in the deficit of the Prairie Farm Emergency Fund and $4 million in outlays on rehabilita-
tion and reclamation projects.
18. Canadian Broadcasting Corporation. The appropriations providing for the
operating and capital grants to this Corporation were charged $88 million during the
year, an increase of $7 million or 8% over 1962-63. The increase was mainly due to the
higher net operating requirements of the radio and television services which amounted
to $78 million in 1963-64, an increase of approximately $6 million over the preceding
year.
19. Citizenship and Immigration. The increase of $5 million or 8% in expenditure by
this Department in 1963-64 compared with the preceding year was mainly due to
increased expenditure by the Indian Affairs Branch on welfare, $1.1 million (10%);
economic development, $1 million (42%); and education $2 million (10%).
20. External Affairs. Expenditure by this Department increased by $12 million
or 14% in the year under review due mainly to an increase of $5 million (34%) in the
cost of memberships in, and contributions to, international organizations and an increase
of $4 million (85%) in assistance to other countries.
21. Finance. The 1963-64 expenditure of $1,406 million by this Department was
$52 million or 4% greater than the total spent in the preceding year. The most significant
variations were an increase of $73 million (8%) in interest on the public debt and a
decrease of $23 million due to the termination in the preceding year of payments under
the Federal-Provincial Tax-Sharing Arrangements Act, 1956, c. 29.
22. Labour. The decrease of $68 million or 19% in expenditure by this Department in
1963-64 in comparison with the preceding year was more than accounted for by a
decrease of $71 million (34%) in payments to the provinces to provide financial assistance
for vocational and technical schools and training programs.
10 AUDITOR GENERAL'S REPORT
23. Mines and Technical Surveys. Expenditure by this Department decreased by
$3.4 million or 5% during the year under review due to a decrease of $4 million (37%)
in the expenditures of the Marine Sciences Branch.
24. National Defence. The expenditure of $1,683 million in 1963-64 by this Depart-
ment was SI 12 million or 7% more than in the preceding year. The increase was more
than accounted for by a $76.5 million supplementary contribution by the Government
to the Canadian Forces Superannuation Account to provide for additional liabilities
resulting from an increase in the rates of pay of Armed Forces personnel, $29 million
(11%) higher expenditure for the Royal Canadian Navy, a $5 million (12%) increase
in outlays of the Defence Research Board, and a $4 million (15%) increase in Mutual Aid
to NATO countries.
25. National Health and Welfare. The increase of $81 million or 7% in expenditure
by this Department in 1963-64 compared with the preceding year was largely accounted
for by increases of $56 million (17%) in the Government's contributions under the
Hospital Insurance and Diagnostic Services Act, $11 million (11%) in unemployment
assistance, and $7 million (1.3%) in family allowance payments.
26. National Revenue. Of the $4.3 million or 5% increase in expenditure recorded
for this Department in 1963-64, $1.7 million (4%) was in the Customs and Excise
Division and $2.5 million (7%) in the Taxation Division. The increases were due to
generally higher administrative costs in both Divisions.
27. Northern Affairs and National Resources. Expenditure by this Department was
down $9 million or 10% in comparison with 1962-63. The most significant change was in
expenditure of the Northern Administration Branch where there was no outlay com-
parable to the $7 million write-off in the preceding year of loans made to the Northern
Canada Power Commission for the construction and installation of public utilities at
Inuvik, N.W.T. Expenditure by the National Parks Branch on the construction or
acquisition of buildings, works, land and equipment decreased by $4 million (24%).
Contributions to provinces to assist in the development of roads leading to resources
were $2.2 million (22%) less than in the preceding year whereas contributions to provinces
to assist in the conservation and control of water resources increased to $7.6 million
from $3.1 million.
28. Post Office. The expenditure of this Department increased by almost $18 million
or 9% in the year under review, due to payment of a retroactive salary increase amount-
ing to $5 million and to general increases in the cost of operations during the year.
29. Public Works. Although the expenditure of $167 million by this Department
in 1963-64 represented an increase of only $4 million or 2.6% over the preceding year,
there were two substantial changes in individual expenditure classifications. There was
AUDITOR GENERAL'S REPORT 11
an increase of $8 million (25%) in outlays connected with the construction of the Trans-
Canada Highway and a decrease of $7 million (24%) in expenditure on harbour and
river works.
30. Trade and Commerce. Expenditure by this Department increased by $8 million
or 12% in comparison with 1962-63 due largely to an increase of $4 million (12%) in
payments to the Canadian Wheat Board with respect to the carrying costs of temporary
wheat reserves.
31. Transport. Although the expenditure of $423 million by this Department in
1963-64 represented an increase of only $7 million or 1.7% over the preceding year, there
were significant changes in several individual expenditure classifications. There were
increases of $18 million — from $22 million to $40 million — in capital subsidies for the
construction of commercial and fishing vessels; $18 million — from $50 million to $68
million — in interim payments to railways to maintain freight rates at reduced levels;
$9 million — from $12 million to $21 million — -in railway construction subsidies; $6 million
(11%) in marine services; together with payments to the Canadian National Railways of
$4 million in respect of the termination of the collection of tolls on the Victoria Bridge,
Montreal, and $3 million of interest on the cost of constructing the rail diversion on
the Bridge for which there were no comparable expenditures in the preceding year.
Largely offsetting these increases were reductions in the deficits of the Canadian National
Railways and Trans-Canada Air Lines of $6 million (12%) and $4 million (100%)
respectively, and decreases of $5 million (94%) in payments to the National Harbours
Board, $16 million (12%) in the expenditure by air services mainly with respect to con-
struction of national airports, and $21 million in outlays under the Freight Rates Reduc-
tion Act, there being no disbursements under the provisions of this Act in the year
under review.
32. Veterans Affairs. Expenditure by this Department of $334 million was $2 million
or 0.6% less than in the preceding year, there being no significant changes in any items
of expenditure classification.
33. Other departments. The increase of $30 million or 10% in the amount shown
for "Other departments" in the table in paragraph 16 was due to a number of significant
changes in the expenditures of the smaller departments. Expenditure by the Department
of Defence Production was $11 million (34%) higher than in the preceding year due
largely to an increase, from $8 million to $19 million, in outlays to sustain techno-
logical capability in Canadian industry. Expenditure by the Department of Forestry
was up $10 million (31%) mainly in respect of freight assistance and storage costs on
western feed grains and payments under the Agricultural Rehabilitation and Develop-
ment Act. There were also increases in expenditure by the National Research Council
12 AUDITOR GENERALS REPORT
of $7 million (16%), by Central Mortgage and Housing Corporation, $5 million (56%),
by the House of Commons, $4 million (69%), by the Department of Justice, $4 million
(11%) and by the Department of Secretary of State, $3 million (58%). The most
significant decrease was one of $17 million (27%) in Atomic Energy expenditure due to
there being no charge in the year under review comparable to the write-off in the
preceding year of the $25 million undepreciated capital cost of the NRU reactor.
Revenue
34. The Summary of Revenue by Main Classifications and Departments for the
fiscal year ended March 31, 1964, prepared by the Department of Finance for inclusion
in the Public Accounts and certified by the Auditor General, is reproduced as Exhibit 4
to this Report. The summary shows tax revenues accounting for $5,534 million of the
total revenue of $6,253 million.
35. The following table summarizes the revenue, by principal sources, for the past
three years:
1961-62 1962-63 1963-64
Tax revenues:
Personal income tax $ 1,792,656,000 $ 1,744,626,000 $ 1,865,074,000
Corporation income tax 1,202,054,000 1,182,837,000 1.258,957,000
Income tax on dividends, interest, etc.,
going abroad 112,306,000 129,137,000 124,500,000
Sales tax 759,678,000 805,971,000 946,055,000
Other excise taxes 262,526,000 260,378,000 273,415,000
Customs duties 534,516,000 644,992,000 581,442,000
Excise duties 362,799,000 381,866,000 393,326,000
Estate tax 84,579,000 87,143,000 90,671,000
Other tax revenues 51,000 27,000 92,000
5,111,165,000 6#36j977,000 5,533,632,000
Non-tax revenues:
Return on investments 307,502,000 311,861,000 366,413,000
Net postal revenue 183,679,000 192,772,000 200,717,000
Other non-tax revenues 127,278,000 137,099,000 152,542,000
618,459,000 641,732,000 719,672,000
$ 5,729,624,000 $ 5,878,709,000 $ 6,253,204,000
36. The amounts shown for income taxes and sales tax do not include collections
of taxes levied under the Old Age Security Act, R.S., c. 200. These collections, which ;
amounted to $750,110,000 in the year, were credited to the Old Age Security Fund. A
AUDITOR GENERAL'S REPORT 13
summary of the transactions relating to this Fund during the year, in comparison with
the corresponding amounts for the two previous years, is given in paragraph 102.
37. Excise taxes. The following is a summary of the excise taxes, other than sales
tax, collected during the year ended March 31, 1964, with comparable amounts for the
two previous years:
1961-62 1962-63 1963-64
Cigarettes $ 185,176,000 $ 195,313,000 $ 200,211,000
Manufactured tobacco 19,599,000 19,123,000 23,460,000
Phonographs, radios and tubes 8,853,000 9,875,000 11,432,000
Toilet articles and preparations 9,397,000 10,142,000 11,126,000
Television sets and tubes 9,570,000 10,059,000 10,578,000
Jewellery, clocks, watches, chinaware, etc 5,577,000 5,793,000 6,353,000
Wines 3,350,000 3,727,000 3,814,000
Cigars 2,775,000 3,372,000 3,267,000
Sundry excise taxes 3,943,000 3,350,000 3,505,000
Automobiles 25,270,000 — —
Refunds and drawbacks —10,984,000 —376,000 —331,000
$ 262,526,000 $ 260,378,000 $ 273,415,000
The excise tax on automobile sales was repealed effective June 21, 1961. The repeal
of this tax, which was accompanied by remission of the tax on automobiles in the hands
of dealers, resulted in the large amount of refunds and drawbacks in 1961-62.
38. Customs duties. The decrease of $64 million in customs duties in 1963-64 in
comparison with the preceding year was due to the removal by April 1, 1963 of the
special rates imposed by the Surcharge on Imports Order of June 24, 1962.
39. Excise duties. A listing of the excise duties collected during the year ended
March 31, 1964, in comparison with the corresponding amounts for the two previous
years, is given in the following table:
1961-62 1962-63 1963-64
Cigarettes $ 151,034,000 $ 157,049,000 $ 157,054,000
Spirits 114,088,000 122,099.000 129,406,000
Beer 92,716,000 98,147,000 102,907,000
Other excise duties 9,521,000 9,463 000 8,623,000
Refunds and drawbacks —4,560,000 —4,892,000 —4,664,000
$ 362,799,000 $ 381,866,000 $ 393,326,000
41. The amounts shown for revenue from the investment in the Bank of Canada
represent the annual profits earned by the Bank and surrendered to the Receiver General
as required by section 28 of the Bank of Canada Act, R.S., c. 13.
The Central Mortgage and Housing Corporation amount for 1963-64 comprised
$80,297,000 ($74,337,000 in 1962-63) of interest on advances under section 22 of the
Central Mortgage and Housing Corporation Act, R.S., c. 46, and $5,228,000 ($5,588,000
in 1962-63) representing the profit for the Corporation's financial year ended Decem-
ber 31, 1963 which was transferred to the Receiver General as required by section 30
of the Act.
The substantial increase of $27 million in earnings of the Exchange Fund Account
for the calendar year 1963 resulted from increases in investment holdings and investment
portfolio changes.
The reduction of approximately $3 million in interest on loans to National Govern-
ments is due to principal repayments of $129 million during the previous year.
The increase of $9,194,000 in interest from the Canadian National Railways is due
to the payment of a full year's interest on an amount of $250 million advanced to the
Canadian National Railways in February and March 1963 under authority of the
Refunding Act of 1955.
The decrease of $8,292,000 in revenue from the Securities Investment Account is
due to there having been no acquisition of securities of Canada for the subsidiary Pur-
chase Fund during the year.
14 AUDITOR GENERAL'S REPORT
40. Return on investments. The following is a listing of the revenue from the
various investments in 1963-64, along with the comparable figures for the two previous
fiscal years:
1961-62 1962-63 1963-64
Bank of Canada $ 107,693,000 $ 96,680,000 $ 1 16,386,000
Central Mortgage and Housing Corporation .... 71,754,000 79,925,000 85,525,000
Exchange Fund Account 32,606,000 35,227,000 62,594,000
Loans to National Governments 30,825,000 29.272,000 26,301,000
Deposits with chartered banks 6,394.000 14,395,000 13,702,000
Canadian National Railways 1,452,000 3,824,000 13,018,000
Farm Credit Corporation 5,962,000 8,482,000 10,869,000
Veterans' Land Act loans 5,895,000 6.549,000 7,373,000
Securities Investment Account 15,068,000 12,351,000 4,059,000
Polymer Corporation Limited 3,000,000 3,000.000 3,500,000
National Harbours Board 3,943,000 3,631,000 3,475,000
Canadian Overseas Telecommunication Corpora-
tion 1,516,000 1,971,000 2,586,000
The St. Lawrence Seaway Authority — — 2,568,000
National Capital Commission 1,505.000 1,776,000 2,319,000
Eldorado Mining and Refining Limited 5,000,000 3,000,000 2,000,000
Northern Canada Power Commission 871,000 1,696,000 1,648,000
Northern Ontario Pipe Line Crown Corporation 4,310,000 4,087,000 1,583,000
Other loans and investments 9,708.000 5,995,000 6,907,000
$ 307,502,000 $ 311,861,000 $ 366.413,000
AUDITOR GENERAL'S REPORT 15
The amount of $2,568,000 represents interest on loans made to The St. Lawrence
Seaway Authority of which $68,000 is interest on temporary loans and $2,500,000 is in
respect of interest for the year 1961.
The revenue from the investment in the Northern Ontario Pipe Line Crown
Corporation, representing interest on loans made to the Corporation by the Government
of Canada, decreased by $2,504,000 by reason of the fact that Trans-Canada Pipe Lines
Limited exercised its option to purchase the Northern Ontario section on May 29,
1963, whereupon the Corporation discharged its liability for loans then outstanding.
42. Net postal revenue. The following table shows the gross postal revenue, less
disbursements therefrom, and the resulting net postal revenue for the past three fiscal
years :
1961-62 1962-63 1963-64
Gross postal revenue $213,518,000 $222,300,000 $235,808,000
Disbursements —
Remuneration of postmasters and staffs at
certain classes of smaller post offices 25,171,000 25,239,000 29,936,000
Other disbursements 4,668,000 4,289,000 5,155,000
29,839,000 29,528,000 35,091000
Net postal revenue $183,679,000 $192,772,000 $200,717,000
The amounts shown for "Other disbursements" mainly comprise charges on parcels mailed
in Canada for delivery in foreign countries and transit charges on Canadian mail for-
warded through foreign countries, together with compensation paid to messengers for
special delivery of letters and parcels.
In paragraph 168 of this Report a summary is given of the Post Office transactions
for the year under review, in comparison with the corresponding figures for the pre-
ceding fiscal year, together with comments on the recorded excess of expenditure over
revenue.
43. Other non-tax revenues. An analysis of the amounts shown in the table in
paragraph 35 for "Other non-tax revenues" for 1963-64 with comparable figures for
the two previous fiscal years is given in the following table:
1961-62 1962-63 1963-64
Services and service fees $ 42,453,000 $ 46,186,000 $ 51,321,000
Proceeds from sales 25,902,000 26,531,000 28,445,000
Privileges, licences and permits 23,271,000 25,008,000 27,172,000
Refunds of previous years' expenditure 18,163,000 22,392.000 26,839,000
Bullion and coinage 7.965 000 9,404,000 9,717,000
Miscellaneous 9,524,000 7,578,000 9,048,000
$ 127,278,000 $ 137,099,000 $ 152,542,000
16 AUDITOR GENERAL'S REPORT
Comments on Expenditure and Revenue Transactions
44. Reference has already been made to the statutory responsibility of the Auditor
General, under section 70 of the Financial Administration Act, to call attention to
specific classes of transactions observed during his examinations and to any other case
that he considers should be brought to the notice of the House of Commons.
Pursuant to this direction, the following matters relating to the expenditure and
revenue transactions examined during the fiscal year under review are brought to the
attention of the House in this Report.
45. Governor General's special warrants. The dissolution of Parliament on Feb-
ruary 6, 1963 before full supply for the year 1962-63 had been granted necessitated
recourse to Governor General's special warrants in order to provide the necessary funds
for the carrying on of government services during the months of February and March
1963. These special warrants were reported and commented upon in paragraph 45 of
my 1963 Report.
As the new Parliament did not assemble until May 16, 1963, Governor General's
special warrants were required during the months of April and May as follows:
(a) one for $260,979,774 on April 1, 1963 which provided the funds which it was estimated
would be required during the month of April 1963 ; and
(b) one for $354,416,247 on May 2, 1963 which provided the funds which it was estimated
would be required during the month of May 1963 or until Parliament was able to
appropriate interim supply.
These two warrants were based on, and were approximately one-sixth of, the Main
Estimates for 1963-64 and the amounts were subsequently included in the amounts
authorized by Appropriation Act No. 1, 1963, c. 1.
The special warrants issued in the fiscal year ended March 31, 1963 had included a
number of items which did not meet the test of being "urgently required for the public
good", as required by section 28 of the Financial Administration Act. After considering
this matter in its examination of the 1963 Report, the Public Accounts Committee in its
Fourth Report 1964 recommended that a study be made of Governor General's special
warrants (see Appendix 1, item 8).
The two warrants issued during the year under review each included three items
which did not meet the test of being "urgently required for the public good". These are:
(1) An item "to supplement other votes, subject to the approval of the Treasury Board,
for the payment of salaries, wages and other paylist charges". Obviously the payment
of the amounts was not urgently required when the special warrants were issued and
the Governor in Council in effect delegated to the Treasury Board his authority under
section 28 of the Financial Administration Act although there is no provision for such
delegation.
AUDITOR GE1SERAUS REPORT 17
(2) An item "miscellaneous minor or unforeseen expenses, subject to the approval of the
Treasury Board, and awards under the Public Servants Inventions Act". As in (1) above,
these items were not urgently required when the special warrants were issued and
represented an unauthorized delegation of authority to the Treasury Board.
(3) Amounts totalling $123,900 to cover the administrative expenses of the National Gallery
of Canada without taking into consideration approximately $53,000 available for this
purpose in the Gallery's special operating account.
We have been advised by the Secretary of the Treasury Board that, in accordance
with the recommendation of the Public Accounts Committee, a study is currently being
made of the financing problems which result when Parliament has been unable to make
provision for the carrying on of governmental services between sessions.
46. Prairie Farm Emergency Fund. The deficit in the operations of this Fund during
the year was $1,073,000, compared with deficits of $7,295,000 and $47,733,000 in the two
preceding fiscal years.
The Fund operates as a special account within the Consolidated Revenue Fund to
record transactions under the Prairie Farm Assistance Act, R.S., c. 213. Under the Act,
a levy of 1 % is imposed on the purchase price of grain purchased by licensees under the
Canada Grain Act, and the moneys collected, which totalled $9,141,000 during the past
year, were credited to the account. Awards are made to eligible farmers in areas affected
by crop failure in the provinces of Manitoba, Saskatchewan and Alberta and the Peace
River District of British Columbia. During the year awards amounted to $10,214,000 and
the $1,073,000 by which these exceeded the revenue from the 1% levy was charged to
| Department of Agriculture Vote 175e.
On December 13, 1963 the parliamentary Committee on Privileges and Elections
recommended the appointment of a Commission to inquire into payments made under the
Prairie Farm Assistance Act relative to the 1962 crop year. Accordingly, a Commission of
Inquiry was established by Order in Council P.C. 1963-1896 of December 21, 1963 and
reported its findings on June 10, 1964.
The Public Accounts Committee at its meeting on June 4, 1964 was informed of the
limited audit performed by the Audit Office of the expenditures of the Fund in recent
years and was assured that, with an improvement in the staff situation, an annual
examination would be undertaken in future. Accordingly, a test examination of the
accounts was made for the year ended March 31, 1964. In our opinion the following
matters which have financial consequences arising from the application of the provisions
! of the Act require serious consideration.
A Board of Review is established by the Act to examine all information and data
regarding the average yield of wheat in any township and to determine the eligibility of
any area for an award. The Board is also required to decide questions concerning the
eligibility of any farmer or class of farmers for awards under the Act. No minutes are
maintained by the Board recording its policies and reasons for certain of its decisions with
18 AUDITOR GENERAL'S REPORT
respect to applications for awards and other relevant matters. As a result, difficulty was
experienced in the verification of the eligibility of townships and farmers for awards
under the Act.
Inspections are made of areas suffering a crop failure and it is the duty of the
inspectors to obtain information from farmers concerned and to determine the actual
yield on each parcel of land. The information is recorded on a "Cultivated Acreage
Report", which is required to be signed by the farmer and by the inspector. These reports
form the basis of the awards and, if the inspectors fail to carry out their duties properly
or if there is collusion, it would be difficult, if not impossible, for irregular payments to be
detected. The Audit Office is therefore in agreement with the recommendations of the
Commission of Inquiry that greater care be taken in investigating and checking the
accuracy of reports, that consideration be given to placing the permanent staff of the
Prairie Farm Assistance Administration under the Civil Service of Canada, and that spot
checks be made throughout municipalities by investigators from P.F.A.A. headquarters.
Our examination revealed that one township had been eligible for an award in
23 out of the 25 crop years between 1939, when the program of crop failure assistance
was inaugurated, and 1963. Thirty surrounding townships were eligible on an average
of 20 out of the 25 crop years. Therefore we also concur in the recommendation of the
Commission of Inquiry that consideration be given to the elimination from eligibility for
payment of awards of marginal land on which crop failures continuously occur from
year to year and which apparently only remain in production by reason of the benefits
available under the P.F.A.A. program.
Section 6(a) of the Act provides that a section of land or blocks of sections, having a
side along the boundary of an eligible township, may be eligible for assistance as long as
the average yield of wheat within such area is eight bushels or less per acre. For 1962 a
policy was introduced whereby a section or a block of sections need touch eligible town-
ships only corner-to-corner. While it is difficult to estimate the total amount paid in
respect of areas receiving awards due to this policy in 1962, a test involving only a small
number of townships revealed payments of approximately $10,000. The policy was not
continued in 1963.
In the 1963-64 crop year there were 288 townships eligible for assistance in the
Alberta Division on the basis of the predominant crop being a coarse grain. In field
inspections, great emphasis is placed on measurement of wheat storage facilities in order
to verify the quantity of wheat on hand and the current year's wheat production. We
were, however, informed that, as a general rule, the stocks of coarse grain on hand were
not measured nor were the sales of coarse grain to date of inspection established by
reference to Wheat Board permit books. One of the reasons advanced for this course of
action was that in many cases considerable quantities of coarse grain had been used as
feed so that it was not possible for an inspector to verify the yield with any degree of
accuracy.
Extensive areas of southern Alberta are irrigated and many farmers grow wheat on
both irrigated and non-irrigated portions of their farms. In accordance with the Act, the
irrigated areas are excluded for purposes of determination of average yields if the vield
AUDITOR GEJSERAUS REPORT 19
of the irrigated portions exceeds 12 bushels per acre. In reviewing the Cultivated Acreage
Reports, it was observed that often little or no yield was reported on large acreages of
non-irrigated land so that the relative township or townships became eligible for awards.
It is not possible to verify information supplied by farmers with respect to the yield of
wheat on the non-irrigated portion of those farms where crops from both irrigated and
non-irrigated areas are stored in the same bins. A similar situation prevails where farmers
operate farms situated in two or more townships.
Section 7 of the Act requires every award under the Act to be paid in the month
of December. In northern areas of Manitoba, Saskatchewan and Alberta and the Peace
River District of British Columbia, harvesting is seldom completed before mid-October
and sometimes November. As a consequence, it is difficult for inspectors to complete
Cultivated Acreage Reports within the time available. Since the information compiled
from these reports must be examined by the Board of Review before eligibility is
determined and cheques processed, only a portion of the awards can be paid during
December. It was observed that most of the awards are usually paid during the months of
January and February and the balance in the following three months. It being impossible
to comply with this section of the Act, consideration should be given to its repeal.
47. Misapplication of public funds at Indian Agency. In 1963 the Department of
Citizenship and Immigration discovered sizeable misapplications of public funds at one
of the Indian Agencies. Investigations established that during the period June 1, 1960 to
December 31, 1962 an estimated $70,000 was diverted by the superintendent of the Agency
from welfare assistance to Indians in the form of cash relief, fuel wood and a community
employment program to projects and activities not authorized by the Department. In
addition, approved limits of expenditure on various authorized activities were deliberately
exceeded.
The superintendent did not always agree with the Department's decisions relating to
expenditures for the benefit of Indians and he disregarded departmental regulations and
directions and financed unauthorized activities by diverting funds from authorized
programs. He and his assistant admitted they had forged endorsements on cheques in
order to use them, but they maintained that all expenditures were for the benefit of the
Indians and denied that they had converted any funds to their personal use. In the
absence of proof that funds were used by the superintendent or his assistant personally,
the Department was unable to establish that any amount was owing to the Crown.
The superintendent was suspended from duty on May 15, 1963 and the assistant
superintendent on September 1, 1963. It is understood that legal action is to be taken
under section 92 (d) of the Financial Administration Act and under section 311 of the
Criminal Code of Canada.
48. Payment for loss of salary pending appointment to a position in the civil service.
It is provided in section 71 (3) of the Civil Service Act that a person who, for at least
three years, has held the position of Executive Assistant to a Minister or the position of
Private Secretary to a Minister, is entitled to be appointed to a position in the civil
20 AVD1TOR GENERAL'S REPORT
service for which the person is qualified, not being lower than the position of head clerk.
The Act is silent as to the person's entitlement if no position is available.
A case was noted where the former private secretary of an ex-Minister became avail-
able for such a position on July 1, 1963 but the Civil Service Commission was unable to
provide employment until February 20, 1964. The Civil Service Commission requested
Treasury Board to recommend an ex gratia payment in the amount of one-half of the
salary the former private secretary would have received had she been employed from
July 1st until the resumption of her employment in the public service at the maximum
rate of head clerk. Payment on an ex gratia basis was authorized by Order in Council
P.C. 1963-8/1730 of November 28, 1963 and the expenditure of $1,979 was charged to
Civil Service Commission Vote 1, 1963-64.
In order to provide for the benefits pursuant to continuity of employment, the Civil
Service Commission drafted a regulation under section 68 of the Civil Service Act
covering the period July 1, 1963 to February 19, 1964 during which the former secretary
was out of employment. This regulation was approved by Order in Council P.C. 1964-6/490
of April 10, 1964.
49. Defalcation by locally-engaged employee in Canberra, Australia. A defalcation by
a locally-engaged accountant employed by the Canadian Mission in Canberra, Australia,
first came to light in January 1963 when a supplier requested from the High Commissioner
payment of a long outstanding account for gasoline. Investigation by officers of the
Mission and by a local auditor engaged for the purpose, together with a confession by the
employee involved, disclosed not only misappropriation of payments made to the employee
for gasoline purchased by Canadian personnel, but also other defalcations involving many
aspects of the accounting activities, both as regards revenues and expenditures.
The Chief Treasury Officer in the Department of External Affairs was dispatched to
Canberra to complete the investigation and he reported a total defalcation of $13,589
over a period of four years. As well as misappropriating payments for gasoline amounting
to $1,533, the employee had stolen $9,636 received from prospective immigrants to cover
costs of air mailing documents to Canada for examination, $888 representing income tax
deducted from salaries of local employees, and $1,532 by means of various other frauds.
Of the total of $13,589 reported stolen, $7,053 was recovered from the employee and
$6,536 is to be charged to the Public Officers Guarantee Account. The direct cost of
investigating this defalcation was approximately $6,000 to which might be added indirect
costs of $6,000.
Our review of the various reports received by the Department dealing with the
circumstances of this defalcation shows that it went undetected so long largely because of
inadequate supervision of the accountant's work in the Mission coupled with a lack of
attention by Mission officers to queries from Ottawa on its accounts and to routine financial
matters. Weaknesses in the departmental system of internal financial control and neglect
in Ottawa to follow up observations raised by Treasury officers were also contributing
factors.
AUDITOR GENERAL'S REPORT 21
The Department dispatches inspection teams periodically to embassies and missions.
The last visit to this Mission was in October 1961 when it was reported that there
appeared to be no major problems regarding financial administration. At that time the
Mission accountant advised the inspection team that departmental and Treasury-
observations on his monthly accounts were few whereas in fact they were numerous and
serious.
The scope of work of the Audit Office in the past has not embraced surprise audits of
embassies and missions abroad for the reason that paid cheques, receipted vouchers and
related supporting material are dispatched to the Department in Ottawa for checking
and audit. We are discussing this procedure with the officials concerned and are reviewing
the Department's system of internal financial control.
50. Government contributions not made to the Public Service Superannuation
Account. As was the case in the three previous years, no special credits were made to the
Public Service Superannuation Account in 1963-64 in respect of salary increases granted
to civil service classes as the result of cyclical salary reviews, although subsection (2) of
section 32 of the Public Service Superannuation Act, 1952-53, c. 47, reads:
"There shall be credited to the Superannuation Account, as soon as possible following
the authorization of any salary increase of general application to the Public Service, such
amount as, in the opinion of the Minister, is necessary to provide for the increase in the cost
to Her Majesty in right of Canada of the benefits payable under this Act, as a result of
such salary increase."
We were informed that the reason no such special credits were made to the Account
as required by section 32 was that the salary increases granted in 1963-64 were not regarded
as increases "of general application".
On March 6, 1964 the Minister of Finance outlined in the House of Commons a
general policy for dealing with deficiencies in the various superannuation accounts. The
Minister stated that the deficiencies existing prior to the commencement of the 1963-64
fiscal year would be written off to net debt, deficiencies created by general pay increases
made in that year which the law requires to be charged to that year's expenditure would
be so charged, and that deficiencies arising from pay increases during the year which
were not general in scope would be charged to expenditures over a five-year period com-
mencing in 1964-65. The Minister further stated that in future the deficiencies arising
from pay increases, whether of a general or cyclical character or otherwise, would be
charged against expenditures over a five-year period commencing in the year in which
the increases are authorized.
When announcing the implementation of this policy on November 12, 1964 the
Minister stated that authority would be sought from Parliament during the year to write
off to net debt a deficiency in the Public Service Superannuation Account as at
December 31, 1962 of $110,536,000 plus interest and to charge the deficiencies arising
22 AUDITOR GENERAL'S REPORT
from pay increases authorized during the fiscal years 1963-64 and 1964-65 against
expenditures over a five-year period commencing with 1964-65 (see paragraph 123 of
this Report).
It has been calculated by the Department of Insurance that the deficiency in the
Account as at December 31, 1962 plus interest to December 31, 1964 will amount to
$119,556,000 and that the additional deficiency arising from pay increases authorized in
1963-64, with interest to December 31, 1964, will amount to $30,506,000.
51. Errors in Public Service Superannuation Account pension and contribution cal-
culations. Comments under this heading have appeared in our Reports to the House
for the past three fiscal years. The Public Accounts Committee in its Fourth Report
1963 noted with concern the high incidence of error in the superannuation accounts, and
in its Sixth Report 1964 (see Appendix 1, item 33) expressed concern that this matter
is taking so long to be corrected and requested the Auditor General to keep the
Committee fully informed.
The responsibility for the operation of the Superannuation Branch was transferred
in December 1963 from the general direction of the Secretary of the Treasury Board
to the Comptroller of the Treasury, the Director of Pensions and Social Insurance of the
Department of Finance retaining responsibility for dealing with cases requiring legal
opinions and decisions regarding superannuation policy.
On assuming this responsibility, the Comptroller of the Treasury appointed a task
force to study the organizational structure of the Branch and review its existing system
and procedures in depth to determine what steps should be taken toward eliminating
the errors occurring in the pension and contribution calculations. He advises that
following receipt of the task force's report, a series of staff meetings were held to discuss
its recommendations and that a number of significant measures designed to remedy this
situation have been or are in the course of being introduced.
There has been some reduction in the number of errors we have had to bring to
the attention of the officers of the Branch during the past year. However, in our
opinion, the incidence of error continues to be higher than it should be in an admin-
istrative operation of this type.
A reference was made in paragraph 53 of last year's Report to the lack of verification
of the correctness of contributions remitted to the Central Pay Division in respect of
employees of Crown corporations. We have been advised that action is being taken to
correct this situation.
52. Deletion of debt without collection effort. In August 1963 it was discovered that
pension payments at a rate in excess of the limit fixed by the Public Service Pension
Adjustment Act were being made to a pensioner. The resulting debt was deleted from
the accounts by Executive order made pursuant to section 23 (1) of the Financial
Administration Act.
Although the amount involved was small, the action was taken without the pensioner
being informed of the overpayment or any effort being made to recover the debt. In the
AUDITOR GENERALS REPORT 23
interest of effective internal financial control, we believe that in no case should a debt
due to the Crown be recommended for deletion unless every effort has been made to
collect.
53. Subsidization of Fishermen's Indemnity Plan. During the year under review
$197,000 was appropriated to meet the 1963-64 deficits arising in connection with the
operations of the Fishermen's Indemnity Plan, of which $29,000 was required by the
Lobster Trap Indemnity Account and $168,000 by the Fishing Vessel Indemnity
Account.
The Plan, which was introduced in 1953-54 and is intended to be self-supporting
except for its administrative costs, provides insurance to assist small-scale fishermen
in meeting losses incurred in respect of lobster traps and fishing vessels. In the case
of the lobster traps, premiums are assessed on the basis of the value category into which
the established average appraised value per trap falls, or at a lower prescribed premium
rate at the option of the fisherman. Indemnity is limited to those traps which cannot
be recovered, or have been damaged beyond repair, in excess of percentages of the
total number of traps on which a premium has been paid — depending on the fishing
districts involved — with the indemnity per trap being substantially less than the
established appraised value per trap used for the determination of premium. For a
fishing vessel, the premium basis is one per cent of the appraised value of the vessel,
to a maximum of $12,500, and indemnity is regulated by formulae covering total or
partial loss and whether the vessel is operated on the eastern or western seaboards.
The legislation provides that the Accounts may be charged with indemnity pay-
ments and credited with premium income with the debit balance not to exceed $150,000
at any time in accordance with regulations of the Governor in Council. Administrative
expenses amounting to $2,251,000 since the inception of the Plan to March 31, 1964
have been met through parliamentary appropriations and are therefore not taken into
account in determining premium rates. Notwithstanding this, both of the Accounts within
the Plan have recorded net deficits from their introduction to March 31, 1964. The
Lobster Trap Indemnity Account has consistently been in a deficit position, the accumu-
lated deficits having aggregated $662,000. The Fishing Vessel Indemnity Account,
although producing surpluses during four fiscal years, most recently in 1960-61, showed
a net deficit of $300,000 to the close of the year under review.
We have discussed the circumstances surrounding the financial results of the opera-
tion of the Plan with officials of the Department of Fisheries. In the case of the
Lobster Trap Indemnity Account, they have explained that deficits of $94,000 and
$153,000 in 1961-62 and 1962-63 respectively were due to an increasing concentration
of policyholders operating in a winter lobster fishing area of Nova Scotia where heavy
seas are almost a daily occurrence, and the fact that insured fishermen tended to extend
their operations into the most vulnerable locations, with the result that it had been
difficult for the Department to provide adequate surveillance. Steps have been taken
to meet the situation through the adoption of improved administrative procedures
and by an amendment to the regulations early in 1964, in line with loss experience, to
24 AUDITOR GENERAL'S REPORT
increase the amount deducted for "normal" loss in the calculation of indemnity. With
respect to the Fishing Vessel Indemnity Account, abnormal weather conditions in most
of the fishing areas have been reflected by heavy deficits over the past two years
as compared with a satisfactory experience in prior years. The Department is presently
engaged in a detailed study to ascertain the extent to which factors other than weather
may have been operative during this period so as to determine what further changes in
the regulations are practical or to what extent the premium rates should be revised.
54. Winter house building program. Department of Labour Vote 34c? in the amount of
$20 million authorized payments, in accordance with terms and conditions approved by
the Governor in Council under the winter house building program, of $500 per dwelling
unit substantially built during the period December 1, 1963 to March 31, 1964.
To establish that a dwelling unit was one on which the incentive could be paid and
which was substantially built within the period specified in the legislation required that it
be subject to inspection, first, at or near its initial stage of construction on or after
December 1, 1963, and finally prior to or about March 31, 1964. These inspections were
made on behalf of the Department by the Central Mortgage and Housing Corporation.
On March 26, 1964 the Minister announced in the House of Commons that because
the success of the program had led to shortages in labour and materials as the substantial
volume of housing construction reached the final stages, the incentive payment would be
denied to some builders whose dwellings would otherwise have been substantially
completed by March 31, and therefore the date of final inspection under this program
was being extended from March 31 to April 15, 1964.
The effect of this would seem to be that some dwelling units that were not
substantially built on or before March 31, 1964 would be regarded as qualifying for an
incentive bonus and therefore the extension of the time for final inspection required
the approval of Parliament.
55. Questionable charge to Vote 70 of the Department of Mines and Technical
Surveys. During the first three months of 1964 a hydrographic vessel operated by the
Department of Mines and Technical Surveys assisted the Royal Navy in charting safer
shipping channels in the Caribbean Sea. The costs of Canada's operation, which were
estimated to be $75,000 in excess of what overhead costs would have been if the vessel
had remained in her normal winter lay-up condition, were charged to the appropriation
(Vote 70) provided for the administration, operation and maintenance of the Depart-
ment's Marine Sciences Branch.
It is understood that Canada's participation in this project provided valuable staff
training for departmental personnel and also an opportunity to return service in kind to
the Royal Navy which originally charted Canadian coastal waters.
In our view, however, it is questionable whether such an undertaking falls within
the ambit of the Department's responsibilities as laid down by the Department of Mines
and Technical Surveys Act, R.S., c. 73.
AUDITOR GENERAL'S REPORT 25
56. National Defence administrative regulations and practices. The Public Accounts
Committee in its Sixth Report 1964 expressed its pleasure that appropriate changes had
been or were in the process of being made in each of the Armed Forces administrative
regulations which had been commented on in our 1963 Report. The Committee requested
the Auditor General to inform the House of Commons of any case where the changes
appear to be inadequate or where abuse and waste of public funds develop (see Appendix
1, item 22). The following paragraphs give brief outlines of the matters which remained
uncorrected during the year under review and of several similar matters coming to our
attention during the year.
1. release from service through purchase. — In the 1963 Report (paragraph 64 (2)) it
was noted that while the Air Force and the Navy required the payment of money for
"other ranks" to obtain release on request, the Army had not done so since 1950. While
the Department expected that the practice would be reinstituted with respect to the
Army, orders giving effect to this have not yet been promulgated.
2. removal expenses — mobile homes. — In the 1963 Report (paragraph 64 (3) ) it was
observed that although new instructions were being issued to deal with the situation,
it would seem appropriate that the regulations also be amended to include specific
directions with respect to the movement of mobile homes and their contents. The new
instructions referred to were issued in the fall of 1963 and the Department decided that
a year's experience would be required to assess their effectiveness. Based on experience
gained in the trial period, new regulations are now being prepared.
3 . excessive payments for travel on transfer. — Servicemen are permitted by the regula-
tions to use their personally-owned automobiles to transport themselves and their
dependents to new places of duty and are entitled to claim mileage allowances to cover
transportation, meals and accommodation expenses based on direct road mileage at
various rates, formulated on the basis of a Service member travelling 300 miles per day.
The regulations also provide reimbursement of the cost of meals and accommodation at
destination during the period the serviceman is awaiting the arrival of his furniture and
effects or while arranging permanent accommodation. In the course of audit it was
noted that Service Orders presently permit the payment of both allowances in cases
where moves of less than 300 miles are completed in one day. As a result, the entitlement
for meals and accommodation is in effect duplicated and the cost becomes excessive.
A restrictive instruction is now under consideration by the Department.
4. uneconomical mode of transportation. — Under present regulations members on duty
travel may at the discretion of the Commanding Officers use their motor cars for their
own convenience. In the audit, instances were observed where two or more members of
the same unit travelled to the same destination for the same purpose, each member being
allowed to use his own car and receive the applicable mileage allowance. For example,
five Army members travelled singly from Calgary, Alberta, to Meaford, Ontario, and
return, each using his motor car and claiming the mileage allowances provided for by
the regulations. Had they travelled as a group by rail, a saving of some $400 would
have been effected. When this matter was brought to the attention of the Department,
instructions were issued to assist Commanding Officers to determine whether approval
should be granted servicemen to use personally-owned motor cars for their own
convenience on duty travel.
26 AUDITOR GENERAL'S REPORT
57. Lease termination payments. The Public Accounts Committee has been recom-
mending since 1960 that the maximum term for lease termination payments to servicemen
be reduced from three months' rent as presently permitted to the equivalent of one
month's rent. Following the recommendation contained in its Fifth Report 1961, the
Department amended the regulations to provide for discretionary powers to be exercised
in dealing with individual cases, but it did not go as far as to reduce the maximum period
from three months to one month.
In its Sixth Report 1964 the Public Accounts Committee expressed the opinion that
the present regulation permitting payment of three months' rent is too susceptible to
abuse and results in a waste of public funds. The Committee again recommended that the
regulations be changed to reduce the maximum period to one month, but as it does not
wish to see servicemen penalized, it further recommended that there be a proviso that
payment up to three months may be made in cases of hardship, provided such cases are
approved by the Deputy Minister (see Appendix 1, item 23). We have been informed
that the matter is currently under review by the Department.
58. Educational costs incurred by the Department of National Defence. In the 1963
Report (paragraph 65) it was noted that audit examinations at selected departmental
schools in Ontario indicated that there had been unsatisfactory control over the computa-
tion of grants receivable from the provincial Department of Education, in some cases
claims not having been made in respect of outlays eligible for grants. In its Sixth Report
1964 the Public Accounts Committee requested the Auditor General to follow this matter
up to determine that amounts of grants underclaimed in the past are recovered and that
practices adopted by the Department to avoid losses in the future are adequate (see
Appendix 1, item 26).
At the close of the fiscal year action was being taken to ensure that applications for
grants are properly made in future and, following correspondence with the Department
of Education of Ontario with a view to obtaining grants underclaimed in prior years, the
Department is preparing revised claims for submission to the Province.
59. Construction of destroyer escort vessels. In 1950 and 1951 the Department of
Defence Production awarded 13 contracts on a cost plus 5% profit basis to 7 shipyards
for the construction of destroyer escort vessels for the Royal Canadian Navy, the last of
which was commissioned in November 1959.
Part of the construction work involved incorporating into the ships certain com-
ponents supplied by the Crown. As the actual cost of the components manufactured by
other contractors had not been determined, a billing price was estimated, but nevertheless
the shipyards were charged on a firm price basis. The amounts of the billings thus became
part of the shipyards' cost on which the 5% profit was calculated. While the final costs
for all components were not available at the fiscal year- end, it is estimated that the billing
prices exceed actual cost by some $1,483,000.
AUDITOR GENERALS REPORT 27
As a consequence, excess profits of some $74,000 have been paid by the Crown on the
shipyard contracts. We have drawn this to the attention of the Department and steps
have been taken to effect recovery from the contractors.
60. Equipment disposed of in error. In April 1963 a unit of electronic aircraft naviga-
tional equipment, originally costing more than $9,000 and having an estimated replace-
ment cost of $15,000, was returned for repairs to an Air Force supply section. Due to an
error, the equipment, instead of being repaired, was declared as surplus to Crown Assets
Disposal Corporation and was sold to a customer, together with other surplus materiel,
at a scrap price of $20. The purchaser in turn sold the equipment for a nominal sum to an
individual who, being aware of the actual value of the unit, refused to return it and be
reasonably compensated.
A Board of Inquiry concluded that faulty procedures respecting the determination as
to whether materiel should be declared surplus to Crown Assets Disposal Corporation
contributed to the improper disposal and expressed apprehension that similar instances
might have occurred. The Department has since revised its procedures.
61. Medical fees improperly retained by a Service medical officer. Contrary to
Service regulations and orders, an Air Force medical officer retained amounts received
from the Group Surgical Medical Insurance Plan for medical treatment provided to
dependents of Service personnel in a Service hospital. In March 1963 the officer was
found guilty of conduct to the prejudice of good order and discipline and was reprimanded
and fined $200, but no action was then taken to recover the amount improperly retained
by him.
In October 1963 the officer was released from the Service at his own request, without
restitution having been requested from him or made by him. In August 1964 the matter
was referred to the Department of Justice which has demanded payment of $4,053 from
the former officer.
62. Town of Oromocto, N.B. In 1955 the Governor in Council approved a proposal by
the Department of National Defence to establish the Town of Oromocto, N.B., adjacent to
Camp Gagetown. Subsequently in 1956 the Town was incorporated by an Act of the
Province which provided for an administrative board of seven commissioners, four
appointed by the federal government and three by the Province. The object in establishing
the Town was to provide municipal facilities to serve not only military personnel stationed
at Camp Gagetown but a civilian population as well, in order to avoid the growth of a
purely military community.
To implement the proposal, the Department turned over to the Town without charge
roads and services already installed in the housing area together with a fringe area of land.
This assistance was augmented by capital grants totalling $1,500,000 to enable the Town
to further develop its roads and services for the purpose of attracting private sponsors
for the various shopping, civic institutional and industrial areas. To complete the physical
95480—3
28 AUDITOR GENERALS REPORT
development of municipal works, the Crown provided capital assistance loans to the Town
amounting in all to $4,450,000 over the years from 1957 to 1961.
In the beginning it was expected that the operating expenses of the Town would be
financed mainly from grants in lieu of taxes on federal property and that this burden
would shift gradually as civilian interests in the Town developed. The shift has not
materialized with the result that annual operating grants provided by the Crown continue
at a high level and it is now expected this condition will exist for many years to come.
The following table summarizes the capital grants, capital assistance loans and
operating grants paid to the Town since its inception:
Year
1955-56 ....
Capital
grants
$ 750.000
Capital
assistance
loans
$ 1,500,000
1,500,000
1,000,000
450,000
Operating
grants
$ 50,000
1956 57
750,000
50,000
1957-58
350,000
1958-59
960,000
1959-60
1,656,000
1960-61
1,600,000
1961-62
1,529,000
1962-63
1,489,000
1963-64
1,800 000
$ 1,500,000
$ 4,450,000
S 9,484.000
Repayments of the above capital assistance loans have totalled $735,000 to March 31, 1964
while interest amounting to $1,110,000 has been received to the same date. Funds for
these payments have been provided out of the annual operating grants provided by the
Department of National Defence.
The Town's operating costs for the calendar year 1963 amounted to $2,030,000 while
its revenues totalled only $209,000. The Department of National Defence owns 1,900
housing units representing about 90% of the value of all property in the Town.
A substantial part (over 50%) of the annual operating costs relates to expenditure
for the operation of seven schools attended by dependents of servicemen occupying
married quarters in the Town. The cost of operating the schools has been a matter of
concern to the Department and Treasury Board for some time. A study of this matter by
Treasury Board staff disclosed that the cost per pupil for 1962 in the Fredericton, N.B.,
school system was $205 compared with $304 per pupil at Oromocto. The Treasury Board
has requested the Department to advise it as to the action proposed to reduce the excessive
education costs.
The capital assistance loans referred to above have from year to year been classified
as assets in the Statement of Assets and Liabilities (Exhibit 2). In both the 1959 and
the 1962 Reports the Audit Office suggested that in view of the very small amount of
AUDITOR GEISERAVS REPORT 29
revenue accruing to the Town (currently and in the foreseeable future) it seemed
unrealistic to continue to treat the loans to the Town as an asset item for purposes of the
Statement of Assets and Liabilities. The Public Accounts Committee, after reviewing
this matter, recommended in its Sixth Report 1964 that the Department of Finance give
consideration to writing off these loans to expense (see Appendix 1, item 25).
63. Military assistance to the United Nations and Indo-China Truce Commissions.
Canadian defence forces are presently engaged in peace-keeping operations for the United
Nations in five countries. In this connection, the Department of National Defence has
absorbed the initial cost of transporting equipment and personnel to the Middle East
and the Congo, travel and removal expenses in Canada, normal pay and allowances,
clothing and personal equipment, etc., which at March 31, 1964 totalled approximately
$39 million. In turn, the United Nations accepted the responsibility of reimbursing
Canada for foreign and special allowances of serving personnel, abnormal depreciation of
equipment supplied by Canada and used by Canadian forces, the cost of operating special
Air Force flights at the request of the United Nations, and items such as vehicles,
ordnance stores, and medical supplies specifically ordered from Canada for the use of the
United Nations forces. Total recoverable expenditures over the years have amounted to
$23 million, of which $2,700,000 was outstanding at the fiscal year-end.
Canada also has military personnel serving with the Indo-China Truce Commissions
in Vietnam and Laos. Expenditures relating to these operations are on a cost-sharing
basis and by March 31, 1964 amounted to some $10,200,000, of which $8 million was
absorbed by Canada and $2,200,000 classed as recoverable. Outstanding recoverable
expenditures at the fiscal year-end amounted to $415,000.
64. Pension awards effective at early age. In our 1963 Report (paragraph 68)
reference was made to the number of servicemen being retired at an early age with
immediate annuities. It was stated that in such cases the amount of the annuities is not
large due to the short periods of service, but the potential cost is substantial because of the
relatively longer expectancy of life. The Department of National Defence had been
considering the advisability of introducing deferred pensions similar to those available
to civilian employees.
The Public Accounts Committee gave consideration to this problem and in its Sixth
Report 1964 requested that it be kept informed as to the progress being made (see
Appendix 1, item 28).
No change in this respect has yet been made in the Canadian Forces Superannuation
ct and we noted that during the year under review 286 immediate annuities, aggregating
342,000, were awarded by the Service Pension Board to retiring Service personnel ranging
^n age from 27 to 40 years. About 57% of these retirements were based on medical
grounds, and in the majority of the other cases the normal pension based on years of
service was reduced up to 30% because of the early age of retirement.
95480—34
30 AUDITOR GENERAL'S REPORT
65. Discretionary awards of Service pensions. In our 1963 Report (paragraph 69)
it was noted that in determining pension awards, every possible consideration is given
to the welfare of the individual serviceman, and it is sometimes questionable whether
a reasonable balance is struck between fairness to servicemen on the one hand and
economy of public funds on the other.
In the year under review similar cases were noted of which the following are
examples. In four instances servicemen were awarded full annuities on being retired
compulsorily for medical unfitness. Information on the files indicated the reason given
for retirement was of secondary importance to others, which, had they been recognized
officially, would have resulted in the aggregate in a reduction in capitalized value of the
annuities awarded of approximately $45,000. Each of the servicemen was 28 years old
and had served the minimum period of time to qualify for pension.
In one of these cases a medical release was recommended although in the opinion
of the Medical Board the serviceman did not require hospitalization or active therapy
in the immediate foreseeable future. Another serviceman was overweight, a condition
that existed on enrolment, and presumably lacked motivation to regain normal fitness.
Another instance concerns an airman who was determined to leave the Service on the
completion of his current engagement in order to return to school. He had indicated
his intention not to re-engage, but was granted a medical release apparently to prevent
a possible re-engagement. The fourth case deals with a medical release following a
long period of domestic trouble and eventual psychological disturbance. At the time
of his release the serviceman was not incapacitated and the Audit Office view is that
he was actually released "to promote economy and efficiency".
In considering this matter, the Public Accounts Committee noted that the Depart-
ment is endeavouring to achieve a system under which the entitlements to all pensions
would be specific. If this were possible, it would eliminate the considerations of the
Pension Board which is now responsible for establishing reasons for release. The Com-
mittee in its Sixth Report 1964 has asked to be kept informed of any action taken to
revise the present system (see Appendix 1, item 29).
66. Questionable pensionable service. Under section 5 (b) (ii) of the Canadian
Forces Superannuation Act, British Service members who, after a career in that
Service, transfer to the Canadian Forces are permitted, on payment of contributions,
to count full-time war and peace service in the United Kingdom Forces as pensionable
on retirement from the Canadian Forces.
It is the practice to allow such members to include in their pensionable service
time served as "boy" (under 18 years of age) in the United Kingdom Forces, although
this type of service is not pensionable under British Service rules. In 11 of some 24
instances noted in the audit, pensionable service was increased by at least three years
and the resulting pensions were materially increased as a consequence of including "boy'
service.
AUDITOR GENERAL'S REPORT 31
67. Unemployment Assistance. Under the Unemployment Assistance Act, 1956, c. 26,
as amended, the federal government contributes to the provinces and territories 50%
of the cost of providing financial assistance to persons unemployed and in need.
In paragraph 71 of last year's Report we repeated the opinion, expressed in
previous Reports, that the Unemployment Assistance Act administered by the Depart-
ment of National Health and Welfare includes ambiguities which have resulted in
varying interpretations, and that the text merits further consideration. In its Fourth
Report 1963 the Public Accounts Committee concurred in this view and major changes
in the legislation are currently under study by the Department (see Appendix 1,
item 4).
Matters reported in previous years to illustrate the varying interpretations given
to the terms of the Act are not commented on again this year except to bring previous
information up to date.
overpayments to province of Quebec. — In last year's Report we stated that the
final adjustments in respect of overpayments referred to in our 1962 Report, which
related to the period from July 1, 1958 to December 31, 1961, were still under
consideration. The Department has now established an amount of $62,000 which it
considers to be the amount of the overpayment for this period although the Province of
Quebec has not yet signified its agreement.
The arrangement, first reported in 1961, whereby the Audit Services Branch of the
Office of the Comptroller of the Treasury participated with the Provincial Auditor of
Quebec in a joint audit of the accounts received by the Province from social welfare
agencies and homes for special care was terminated with the completion of the audit
of claims for the period July 1, 1958 to December 31, 1961. Claims for periods sub-
sequent to December 31, 1961 are examined and certified by the Provincial Auditor in
accordance with the Unemployment Assistance Agreement, prior to examinations made on
behalf of the federal government. The Provincial Auditor's examination covers all elements
of unemployment assistance costs included in the provincial claims with additional verifica-
tion of payments to social agencies and homes for special care by reference to the records
at those institutions.
supplemental allowances in British Columbia. — In last year's Report we noted
that the Province of British Columbia had objected to the amount of $111,400, estab-
lished by the Audit Services Branch as the estimated amount of the overpayment of
supplementary allowances resulting from the application of individual budgetary assess-
ments of need in place of means tests, and that a new calculation of the overpayment
was being made. The recalculation was completed during the year under review and the
Department and the Province of British Columbia have accepted the amount of
$64,900 reported by the Audit Services Branch as being the revised amount of the over-
payment. As $111,400 had previously been withheld from payments to British Columbia,
the difference of $46,500 was paid to the Province during the current year to complete
the adjustment.
32 AUDITOR GEJSERAUS REPORT
accumulation of comforts allowances — We have previously pointed out a
number of anomalies that have arisen in the administration of amounts which recipients
of unemployment assistance who are residents of homes for special care are allowed to
retain out of their personal incomes for comforts not provided by the institutions.
Some of these still continue, and our examinations during the year under review indicate
that in many cases these comforts allowances are not spent currently by the recipients
but are retained by the institutions in trust accounts where they accumulate and may
be used to cover expenses excluded from shareable unemployment assistance costs by
section 4 (2) (d) of the Act. It is our view that accumulation of funds in this way for
some future indeterminate use is not consistent with the Agreement.
determination of need. — There are instances in which certain types of income are
ignored in calculating the amount of welfare assistance to be paid. While there is no doubt
that the determination of need is within the jurisdiction of the provinces, it does not seem
reasonable that in arriving at need some income should be considered and some excluded.
Not only does this appear to be a deviation from the needs test basis but it discriminates
against the recipients who do not have this kind of income.
strengthening of administrative control. — Last year we stated that the Depart-
ment had accepted our suggestion that it assemble an internal audit group to take
responsibility for the verification of unemployment assistance costs claimed by the
provinces. Recruitment of this staff commenced in 1963-64 and was completed during the
current year. By stationing these federal representatives at the provincial capitals, the
Department expects to establish an effective liaison with the provinces and maintain a
continuous comprehensive review of provincial welfare administration and legislation as
they affect federal-provincial shared-cost programs in the welfare field. Strengthening of
the Department's control procedures and examination of claims in this manner should
make the administration of the unemployment assistance program less difficult in the
future.
68. Provincial payments to federal hospitals under the Hospital Insurance and
Diagnostic Services Act. In our examination of transactions under agreements with the
provinces pursuant to the Hospital Insurance and Diagnostic Services Act, it appeared
doubtful whether the terms of the agreements relating to payments by the provinces to
federal hospitals were being adhered to in all instances.
Generally speaking, the basis of settlement with federal hospitals called for by the
agreements is a per diem rate calculated in the same manner as for other hospitals
comparable in terms of size, facilities, standards of service and location. One notable
exception is the Province of Alberta where the rate under the Agreement is the rate
provided in section 5 of the regulations under the provincial Act for persons admitted as
in-patients to approved hospitals who are not eligible for insured services.
There are a number of complicating factors which have made it difficult to carrj
out the terms of the agreements that relate to federal hospitals. In the first place, th(
AUDITOR GETSERAVS REPORT 33
system of accounts in federal hospitals, although usually uniform for hospitals under the
jurisdiction of one department, varies from department to department and generally
speaking is not in accordance with the Canadian Hospital Accounting Manual which is
the basis of accounting for purposes of the Hospital Insurance and Diagnostic Services
Act. Moreover, in many of the Indian hospitals neither the accounting nor medical
records could be said to be adequate for purposes of the agreements under the Hospital
Insurance and Diagnostic Services Act. As a result, few of the hospitals are in a position
to submit the required financial returns. Secondly, many federal hospitals are specialized
institutions and it is often difficult or impossible to find a truly comparable institution.
Thirdly, the average length of stay for similar illnesses and age groups is almost invariably
considerably higher in federal hospitals which, of course, means greatly increased cost to
the provinces if the same per diem rates are allowed the federal hospitals.
In Alberta, for example, although the rate payable is that fixed by provincial regula-
tion, the Province has for several years paid less than this rate on the grounds that the
lengths of stay in federal hospitals are considerably above the provincial average. It
contends that, taking into account the longer stays for which they are being paid, federal
hospitals are being fairly dealt with.
Whatever the problems may be, it seems clear that steps should be taken to bring
federal hospital accounting in line with requirements where necessary, and revisions to
the agreements should be made to the end that all the terms may be fully complied with.
In the present circumstances it is not always possible to adequately appraise settlements
being made.
69. Payment of duty on coasting trade vessel deferred. The owner of a foreign-built
British vessel applied for a licence to engage in the coasting trade of Canada. Section 670
of the Canada Shipping Act, R.S., c. 29, states that a coasting licence shall be issued to
foreign-built British ships upon payment of the duty which the Customs Act and related
regulations require to be paid in full. The owner was accordingly assessed duty on the
vessel under tariff item 440 at the rate specified, viz., 25% ad valorem on the fair market
value of hull, machinery, furniture and appurtenances. On August 6, 1963 the Department
instructed its collector at the port of entry to issue the licence but, because the owner
could not pay the duty of $10,078 in full, arranged to accept a down payment of $3,000
on August 12, 1963 and post-dated cheques payable monthly through September 30, 1964
to cover the balance. No interest was charged.
The Customs Act is not only specific under section 22 in requiring that duties must
be paid in full at the time goods enter Canada but also provides under section 79 that:
"No person shall make, nor shall any officer accept any bond, note or other document
for the purpose of avoiding or deferring the actual payment of duties legally accruing on
goods imported into Canada, or arrange for deferring payment of such duties in any way,
unless such goods are entered for warehouse, and duly deposited therein according to the
laws and regulations governing the warehousing of such goods."
34 AUDITOR GENERAL'S REPORT
To further protect the revenue, the Act provides penalties under section 235(1) to be
assessed against a collector or other officer who allows payment of duty to be avoided
or deferred:
"Every collector or other officer who allows the payment of duties of Customs to be
avoided or deferred for any cause or consideration whatsoever, except by regular entry for
warehouse, is liable to a penalty equal to the full value of such goods, and the duty accruing
thereon, which shall be recoverable in any court of competent jurisdiction, from him or his
sureties or either of them."
When the Department instructed its collector at the port of entry to issue the coasting
licence to the owner of the ship, the collector was advised that special arrangements had
been made in the Department regarding payment of duty. As a consequence of carrying
out this instruction, involving as it did payment of duty on an instalment basis, the
collector immediately rendered himself liable to the penalty imposed by section 235 (1)
which amounted to $50,391. On September 26, 1963 the full amount of this penalty was
remitted by an Order in Council under authority of section 22 of the Financial Administra-
tion Act. The remission is shown on page 43" 13 of the Public Accounts for the fiscal year
1963-64.
On drawing the irregularity of these steps to the attention of officers of the Depart-
ment, we were informed that they are of the opinion that payment of the duty in the
manner described was legalized by remission of the penalty assessed against the collector
and that the procedure used is proper within the meaning of the legislation involved.
It is the opinion of the Audit Office that the penalty provision contained in section
235 (1) of the Customs Act exists for the protection of the revenue against collectors or
other officers who may allow payment of duties to be avoided or deferred, and that the
action of the Department in penalizing the collector for its own failure to collect the
duty in full and then causing the penalty to be remitted is irregular and undesirable.
If it is not, then it would appear that any section of any Act with respect to which there is
a penalty within the meaning of section 22 of the Financial Administration Act could be
circumvented simply by using the device of having a public officer deliberately contravene
any such section and then remitting the penalty incurred by his unlawful act.
Section 670 is one of the sections in Part XIII of the Canada Shipping Act and, as
already stated, specifically provides that a coasting licence may be issued to a foreign-
built British ship only if the duty has been paid. Section 673 in Part XIII gives the
Governor in Council the following power:
"The Governor in Council may, from time to time, by order in council declare that the
foregoing provisions of this Part shall not, for the period specified in such order in council,
apply, either throughout Canada or in any specified waters of Canada, to the ships or vessels,
or to any specified, ascertained or ascertainable class or number of the ships or vessels, of
any foreign country."
AUDITOR GETSERAVS REPORT 35
It was noted that the Order in Council referred to above also exempted the vessel in
question from the provisions of Part XIII of the Act. Since the power of the Governor
in Council in section 673 is restricted to ships of "any foreign country", it seems to us that
the exemption could not apply to the vessel in question which is a foreign-built British
ship. In reply to our inquiry concerning this, departmental officers stated they were
treating the ship as though she were a foreign ship because the duties were being deferred
and not paid at the time the coasting licence was granted.
70. Remission of duties on certain motor vehicles and parts. Sections 22 (1) and 79
of the Customs Act, R.S., c. 58, as amended, read as follows:
"22. (1) Unless the goods are to be warehoused in the manner by this Act provided,
the importer shall, at the time of entry pay down, or cause to be so paid, all duties upon all
goods entered inwards; and the collector or other proper officer shall, immediately thereupon,
grant his warrant for the unlading of such goods, and grant a permit for the conveyance of
such goods further into Canada, if so required by the importer."
"79. No person shall make, nor shall any officer accept, any bond, note or other docu-
ment for the purpose of avoiding or deferring the actual payment of duties legally accruing
on goods imported into Canada, or arrange for deferring payment of such duties in any way,
unless such goods are entered for warehouse, and duly deposited therein according to the
laws and regulations governing the warehousing of such goods."
Order in Council P.C. 1963-1/1544 of October 22, 1963, passed pursuant to section 22
of the Financial Administration Act, remits all customs duties payable with respect to
certain motor vehicles and motor vehicle parts to the extent by which the Canadian
content value of vehicles and parts exported by the importer in three designated periods
exceeds the Canadian content value exported during the base year November 1, 1961 to
October 31, 1962.
In actual practice the Department generally refrains from exacting payment of
duties at the time of importation and waits for a period of several months to one year or
more until the extent to which the importer is able to comply with the export conditions
as set out in the remission order is determined. To the extent that the importer cannot
comply, he must pay the duties.
In effect, the Department is deferring payment of duty until such time as the amount,
if any, which the Governor in Council has remitted is determined, and it is the Audit Office
view that the Department lacks authority to do this because of the requirements of
sections 22 (1) and 79 of the Customs Act.
71. Refund of sales tax on materials used in construction of certain buildings. Section
47A of the Excise Tax Act, 1963, c. 12, reads as follows:
"Where materials have been purchased by or on behalf of
(a) a school, university or other similar educational institution for use exclusively in the
construction of a building for that institution, or
95480—4
36 AUDITOR GETSERAVS REPORT
(b) any organization for use exclusively in the construction of a building for that organiza-
tion that is to be used exclusively or mainly as a public library operated by or on
behalf of that organization on a non-commercial basis,
and the tax imposed by Part VI has been paid in respect of those materials, the Minister
may, upon application by such institution or organization in such form as the Minister
prescribes made to the Minister within two years from the time the materials were purchased,
pay to such institution or organization an amount equal to that tax."
Because an actual tabulation of the sales tax paid on the many items entering into
the construction of a building is extremely difficult, it was the opinion of the Department
that the arrangements by which educational institutions could obtain a refund of sales
tax must be simplified.
Accordingly Order in Council P.C. 1964-1/692 of May 12, 1964 approved a formula
for determining sales tax refundable on materials used exclusively in the construction of
buildings for schools, universities or other similar educational institutions or public
libraries, to be used by persons entitled to a refund of sales tax pursuant to the provisions
of section 47A as an alternative to the present standard refund claims procedure. The
formula is designed to determine the approximate value of taxable material in a building
and to estimate the amount of the refund that may be claimed.
Section 47A directs the Minister to pay an amount equal to the tax that has been
paid and there does not appear to be any authority in the Excise Tax Act to pay a refund
based on an estimated taxable value of materials incorporated into a building.
72. Refunds of duties and taxes on estimated basis. In order that Canadian airlines
may be in a tax position comparable to foreign airlines, the Governor in Council, under
authority of section 22 of the Financial Administration Act, grants remission of duty, sales
and excise taxes paid on parts, equipment and consumable maintenance stores for aircraft
operating in international service.
The Department of National Revenue finds it administratively impractical in some
cases to determine actual quantities to which remissions should apply and so relies on
considered estimates in calculating the remissions to be granted.
A similar situation exists with respect to refunds to provincial governments of taxes
paid indirectly. These too are estimated carefully for refund purposes in order to avoid
excessive clerical costs.
If these practices, which are not now recognized by the taxing statutes, are to
continue they should receive legislative sanction.
73. Refund of duty paid on goods diverted to use other than that for which they
were imported. In a number of cases the customs tariff provides alternative rates of
duty on certain goods, depending on the use to which they are to be put when imported.
No specific authority is contained in the Customs Act under which the Department
may grant refunds in cases where goods were entered under an item of the tariff, upon
payment of duty at the rate applicable to such goods, and subsequently diverted to a
use which would have entitled them to entry under a different tariff item had they then
AUDITOR GENERAL'S REPORT 37
been imported. Nevertheless, the Department as a matter of equity has adopted a
policy of making refunds in such cases, treating the original payment as "duty paid
in error".
It is the view of the Audit Office that if this policy is to be continued it should
have legislative sanction.
74. Possible loss of revenue when goods lose tax-exempt status. Equipment is
sometimes imported to be leased to an institution which is exempt from duty and sales
tax, with ownership remaining with the importer.
In such cases the Department requires that the importer be in possession of a
lease commitment from a tax-exempt institution and that a copy of this be filed with the
relative customs import entry. Entry is also contingent on the equipment being
exported under customs supervision on expiration of the lease or duty being paid on an
appraised value with allowance for depreciation. The Department permits the transfer
of the equipment from one tax-exempt institution to another but if the equipment
is warehoused it loses its exempt status and duty must be paid.
Similar situations exist where there is entitlement to make domestic purchases free
of sales tax. Should any article so purchased be later transferred to an end use that is
not exempt from tax. either the new purchaser or the vendor must report and pay the
proper tax.
Having laid down the rules governing goods which lose their tax-exempt status,
the Department placed on the owners the onus for reporting any duty or tax payable
and no departmental control of non-tax paid equipment or goods was maintained. Con-
sequently, it is possible for equipment or goods to lose tax-exempt status without this
coming to the attention of the Department, in which case there would be a loss of
revenue to the Crown.
75. Loss on buildings abandoned. In paragraph 86 (11) of our 1961 Report, reference
was made to the construction of two houses at the customs port of Pigeon River,
Ontario, in 1957 at a cost of $45,000. At that time one of the houses had not been
occupied and the Department was paying the cost of fuel oil and electricity in
addition to the regular expenses of upkeep. Two other houses had been built for
Customs-Excise officers at this port, one in 1950 at a cost of $16,000 and one in 1954
at a cost of $21,000. Two houses had also been built by the Department of Citizenship
and Immigration in 1955 and 1956 at a cost of $50,000. A dormitory and a warehouse
erected in 1947 and 1951 respectively, cost $11,000. The cost of these departmental
buildings at the site of the customs port thus amounted to $143,000, exclusive of the
cost of land. In the period when the houses were available for occupancy, one had been
vacant for seven months, one for twelve months, while the one mentioned in the 1961
Report was occupied for only nine months in its six years of existence.
In September 1963 a new bridge was constructed over the Pigeon River and the
customs port was moved to the new location eleven miles to the east. The question of
95480—44
38 AUDITOR GENERAL'S REPORT
moving the six houses was considered but because of the excessive cost of such an opera-
tion it was decided to abandon the houses and their related buildings. Departmental
officers now live in or near Fort William or Port Arthur and each receives a daily mileage
allowance for commuting between his home and the port — a distance of approximately
40 miles.
The houses were declared surplus in November 1963 and turned over to Crown Assets
Disposal Corporation which has since disposed of them for $8,145 on the condition that
they be removed from the site. The Department has furnished us with the following
reasons for this stipulation :
(1) to have sold the buildings without such a requirement might have led to their occupancy,
thereby aggravating the problem of uncontrolled border crossing while the old bridge
remained in place;
(2) the Ontario Department of Highways was unable to give any assurance that the dead-end
road leading to the old bridge site would be maintained;
(3) the possibility existed that the provincial government might include the area in question
in the development of a provincial park.
The land on which the buildings had stood was declared surplus to Crown Assets
Disposal Corporation in October 1964.
76. Drawback paid on goods destroyed after release from Customs. Order in Council
P.C. 1961-1135 of August 9, 1961 established regulations governing drawbacks of customs
duties, sales tax and excise taxes paid on goods imported and subsequently exported
or destroyed.
We have been informed that the Order was passed in accordance with sections 275
and 277 of the Customs Act, R.S., c. 58, as amended. These sections are as follows:
"275. (1) The Governor in Council may, under regulations made by him for that
purpose,
(a) allow, on the exportation of goods which have been imported into Canada and on which
a duty of customs has been paid, a drawback equal to the duty so paid with such
deduction therefrom as is provided in such regulations; and
(6) allow a drawback equal to the duty paid, with such deduction therefrom as is provided
in such regulations, or a specific sum in lieu of such drawback, in respect of materials
used in, wrought into or attached to goods exported, or in respect of materials (not to
include fuel or plant equipment) consumed in the manufacture or production of any
such goods.
(2) The period within which such drawback may be allowed, after the time when the
duty was paid, shall be limited in such regulations."
"277. The Governor in Council may interpret, limit or extend the meaning of the
conditions upon which it is provided in any Act imposing duties of Customs that any article
may be imported free of duty for special purposes, or for particular objects or interests; and
may make regulations for declaring or defining what cases shall come within the conditions
AUDITOR GENERAL'S REPORT 39
of such Act, and to what objects or interests of an analogous nature the same shall apply
and extend, and may direct the payment or non-payment of duty in any such case, or the
remission thereof by way of drawback, if such duty has been paid."
The Customs Act makes no specific or general reference to imported goods destroyed
in Canada but section 22 (6) of the Financial Administration Act as amended directs
that:
"No tax paid to Her Majesty on any goods shall be remitted by reason only that after
the payment of the tax and after release from the control of customs or excise officers, the
goods were lost or destroyed."
Because of this the Audit Office entertains doubt as to the validity of section 3 (1) (a)
(ii) of Order in Council P.C. 1961-1135 providing for the payment of a drawback on
goods "destroyed in Canada at the expense of the owner under Customs supervision".
The case which attracted attention to this matter involved a refund of $2,525,
representing a 90% drawback of customs duty paid on imported machinery which after
duties were paid and after release from Customs but before actual use, was destroyed
by fire in the warehouse of the importer. The goods were recognizable after the fire to
the extent that the serial numbers could be deciphered but the machines were not
considered usable. Later they were completely destroyed by sledge hammer under super-
vision of a Customs officer.
In our opinion it is questionable whether the Governor in Council under authority
of the Customs Act may authorize drawback of all or part of the duties paid on goods
which are destroyed when section 22 (6) of the Financial Administration Act expressly
forbids the Governor in Council to remit the tax under the same circumstances.
77. Waiving of postage charges. Section 22 (1) of the Financial Administration Act
reads :
"The Governor in Council, on the recommendation of the Treasury Board, whenever he
considers it in the public interest, may remit any tax, fee or penalty."
The Post Office Department has at no time made use of this section. Instances
occur from time to time where for one reason or another, but particularly because the
second class mail regulations are extremely complex, errors in the application of postal
rates have resulted in under-collections of postage revenue. When such an error is
detected the practice has generally been to impose the correct rate from the time the
error was noted and to forgive the past.
The Post Office Department considered the waiving of charges for postage to be an
administrative discretion, but in our opinion it is not within the Department's power
to exercise discretion in waiving a charge for postage that is properly payable. Any
relief to be given is the prerogative of the Governor in Council under section 22 of the
Financial Administration Act.
40 AUDITOR GEISERAUS REPORT
78. Departmental decision not to dismiss an employee. Section 57 of the Civil
Service Act provides authority for the suspension of an employee during an investiga-
tion of alleged misconduct or incompetence. The procedure upon completion of the
inquiry is prescribed in section 59 of the Act which states:
"59. (3) Upon completion of the investigation or proceedings, as the case may be, the
deputy head shall
(a) if as the result of the investigation or proceedings he is satisfied that the employee has
been guilty of misconduct or incompetence
(i) recommend the dismissal or demotion of the employee, or
(ii) suspend the employee for a further period not exceeding six months; or
(6) if as the result of the investigation or proceedings he is not satisfied that the employee
has been guilty of misconduct or incompetence, rescind the suspension retroactively to
the time it was first imposed."
The officer in charge of a postal station was suspended under section 57 of the Civil i
Service Act pending investigation of a fire and alleged robbery. When an audit revealed
extensive falsification of the accounts, the suspended officer admitted falsifying the cash '
accounts and accepted responsibility for a shortage of $2,156. The Department rescinded
the suspension and retired the employee on the basis of his having reached 60 years of i
age (with the consequent entitlement to an immediate annuity under the provisions of the '
Public Service Superannuation Act) on the understanding that he would reimburse the
Crown for the deficiency. Collection was made from the annuity.
If the employee had been dismissed for misconduct, his entitlement to a superannua-
tion benefit, other than a return of contributions, would have been conditional upon a I
decision of the Treasury Board. In view of the provisions of section 59 (3) (a) of the
Civil Service Act, quoted above, this would appear to have been the proper course of action.
79. Second class mail. In its Fourth Report 1963 the Public Accounts Committee
expressed the belief that early consideration should be given by Parliament to the
alternatives of revising upward the rates of postage on Canadian publications or providing
an annual appropriation in an amount sufficient to cover the loss of the Post Office in
handling second class mail (see Appendix 1, item 1). The Committee requested the
Auditor General to keep the matter before Parliament in his annual Reports in order that
subsequent Committees might give consideration to it.
The costs of handling the various classes of mail have in the past been estimated
by the Department by means of a cost ascertainment procedure in which time studies
were used. There has been no cost ascertainment study since 1961-62 which was the last
of the triennial tests. This study has been used as a basis for analysing the revenues and
costs of the years 1962-63 and 1963-64 and as a result of this projection, the loss on
handling second class mail was estimated to amount to $35 million in 1963-64. However,
the Post Office Department now considers that the costs already allocated to first class mail
should be increased by 15% in consideration of the preferential treatment accorded to this
mail. This surcharge against first class mail would amount to about $17 million in 1963-64,
AUDITOR GENERAL'S REPORT 41
with the result that the costs applicable to other classes of mail and other postal services
will be reduced by the same amount. The Department has not made any calculation of
the effect that this reduction will have on the loss applicable to second class mail.
The Department has engaged a firm of consultants to look into its cost ascertainment
procedures with a view to producing more accurate costs with respect to the various
classes of mail.
During the year under review second class mail revenues declined by $203,000 to
$8,183,000. The Department attributes this decline to a reduction in the advertising
content of some publications and to the acceptance of enclosures in publications at the
per pound rate in place of the higher printed matter rate charged prior to April 1, 1963.
With effect from April 1, 1964, the Department substantially increased the postage
rate on newspapers and periodicals mailed by the general public (as opposed to mailings
by publishers) by withdrawing the second class postage rate formerly applicable to this
mail and making it subject to the higher printed matter rate. We are informed that this
is expected to increase postal revenue by $560,000 annually.
The Government presently has before Parliament proposals for revisions of postal
rates, three of which are in respect of second class matter mailed by publishers. We are
informed that these three proposals are primarily intended to simplify the rate structure,
and that they will probably reduce the revenue from publishers by approximately $135,000
annually.
80. Defalcations in the Malartic area oj Quebec. In 1960 former employees of the
Department of Public Works in the Malartic area complained that the wages they had
received from the Department were less than had been reported for income tax purposes.
A preliminary investigation of this circumstance indicated the probability that various
types of irregularities had occurred in the years 1955 to 1960 in connection with a
substantial number of minor river cleaning, wharf repair and construction projects carried
out in the area. Subsequent investigations by the Royal Canadian Mounted Police have
established that fraud was perpetrated in a number of ways involving both departmental
employees and suppliers in connection with over 70 projects, and including payroll
padding, fictitious and inflated suppliers' invoices, etc.
Since these defalcations first came to light, recoveries have been effected as a result
of legal actions taken against employees and suppliers concerned. These recoveries,
amounting to $13,803 to date and involving 26 individuals and firms, are being reported for
the first time during the year under review in the Statement of Losses (Public Accounts,
page 43-29).
As the Department turned over the investigations with respect to these losses
to the Royal Canadian Mounted Police, it has not maintained records of the amounts
for which each of the numerous individuals concerned was considered responsible. Con-
sequently it does not have a calculation of the total loss involved or of the amount which,
because of failure to recover, must in due course be charged to the Public Officers
Guarantee Account.
42 AVDITOR GE1SERAUS REPORT
We have pointed out to the Department the information that will be required in
order to finally dispose of these losses and understand that this is now being compiled.
81. Cost of plans for administration building for Department of Agriculture. In
1955 an architect was engaged by the Department of Public Works to prepare plans and
specifications for and to supervise the construction of a headquarters building in Ottawa
for the Department of Agriculture. From 1957 to 1960 payments totalling $190,500
were made to the architect for the design phase of his undertaking, representing three-
fifths of the full fee of 5% on the originally agreed cost estimate of $6,350,000. In 1961
the architect was instructed to carry out certain revisions to the existing building plans
to meet new requirements. Because extensive revisions were required — which resulted in
a new cost estimate of $10,408,000 — it was agreed that the amount to be paid to him could
be fairly assessed only on a time and cost basis. Provisionally it was estimated that this
might involve an additional amount of $250,000. By February 1964, however, the architect
had claimed costs of $428,013 with respect to the 1961 revisions of which he was paid
$262,087 prior to March 31, 1964. In August 1964 the Treasury Board approved payment
of the balance bringing to $618,513 the architect's remuneration for the design work on
the building.
Had no revisions of building plans been involved, the design portion of the full fee
relating to the actual contract price of $9,266,500 as at March 31, 1964 would have
amounted to only $278,000. Construction of the building commenced in October 1963
and is scheduled for completion in April 1966.
82. Accounting for advance planning of construction projects. In 1954 the Depart-
ment of Public Works initiated an appropriation in its Estimates, "To provide for advance
planning of projects including acquisition of sites". The purpose was to avoid the
necessity of listing items in the Estimates before planning had commenced or land had
been acquired. Like provision was made in the Estimates of succeeding years, including
the year under review. Although the revised form of the Estimates for the 1964-65 fiscal
year has resulted in the elimination of a separate appropriation for the purpose, provision
for advance planning appears in the Details relating to several of the Department's
construction votes.
In 1957 the Treasury Board agreed that the Advance Planning vote could be used for
the planning of construction projects which were to be charged to the appropriations of
other departments. The Board emphasized, however, that in such circumstances charges
to the Advance Planning vote were to be regarded as advances, to be recovered from the
other departments as soon as convenient in the same fiscal year; otherwise, construction
costs for which other departments were responsible would be divided between their
accounts and those of the Department of Public Works. The Board reiterated this
position in subsequent years.
In 1963 the Department of Public Works recommended to the Treasury Board that
any charges to the Advance Planning vote in connection with other departments'
AUDITOR GENERAL'S REPORT 43
construction projects be permitted to remain as final charges to that vote, thus eliminating
the reimbursement features required by the Treasury Board. Although no relaxation of
the requirement has come to our attention, the Advance Planning vote for 1963-64
remained charged with architects' fees, legal costs, etc., of $15,844 in connection with the
planning for a building, the construction of which will be the financial responsibility of
the Department of Forestry. No reimbursement was sought from that Department. The
situation is drawn to attention because, in our opinion, it remains undesirable for the
costs of a project to be divided between the accounts of two departments.
83. Damage to Coast Guard vessel. On August 8, 1963, in what was described as
"fine clear weather with excellent visibility", a Canadian Coast Guard ship of the
Department of Transport ran aground in the St. Lawrence River while en route from
Trois Rivieres to Quebec. Damages which cost $147,671 to repair were sustained. The
departmental investigation that followed indicated that there were no extenuating
circumstances and that the officer in charge of the vessel at the time of the accident was
solely responsible.
The case was submitted to the Department of Justice and the opinion was given that
the accident was mainly attributable to the negligence, major in character, of the officer
in charge. He was assessed the maximum penalty of $250 pursuant to the Claims Regula-
tions and transferred to another position.
The foregoing is an example of losses borne by the Crown under its policy of acting
as its own insurer. In order that Parliament may be more completely informed, such
losses should be summarized or otherwise recorded in the Public Accounts.
84. Financial consequence of faulty ship design. In 1961 a firm of naval architects
was engaged by the Department of Transport to prepare plans and specifications required
for the construction of a weather ship for the Pacific coast.
After a contract for the construction of the vessel had been awarded in August 1963
at an estimated cost of $9,915,000, the contractor informed the Department that his
checking of the weight estimates inherent in the design indicated a miscalculation by the
architects of about 750 tons, which would have an adverse effect on stability and displace-
ment to the extent that structural changes would be necessary. The Department confirmed
that serious errors in calculation had been made and considered ways and means of
overcoming the differential in stability. As a result a number of structural changes were
provided for, including the comparatively costly use of aluminum in lieu of steel in the
superstructure.
The firm of naval architects has received $117,000 representing full payment in
accordance with the terms of the engagement entered into with the Department in 1961.
Although construction of the weather ship will not be completed until 1966, the Depart-
| ment expects that the structural changes involved will increase the cost of the vessel by at
: least $500,000.
44 AUDITOR GEJSERAUS REPORT
85. Repairs and alterations to Canadian Coast Guard ships. For many years the
Department of Transport has experienced difficulty in complying strictly with the require-
ments of the Government Contracts Regulations in respect of repairs to units of the
departmental Coast Guard fleet. Because there is no way of determining, before a ship is
placed in the hands of a ship repairer and opened up for examination, what the extent of
repair costs is likely to be, the problem of estimating on a reasonably accurate basis and
securing the necessary Treasury Board approval before the work is undertaken has been
a continuing one.
A case observed during the year under review serves to illustrate the problem. In
April 1963 the Treasury Board approved of entry into a contract for the annual refit
repairs of a vessel at the lowest tender price of $43,346 and at the same time authorized
further expenditure of up to $35,500 to cover any additional repairs which might be found
necessary subsequent to the commencement of the work. Additional work of the type for
which the $35,500 was intended to provide was carried out at a cost of $57,994 and the
opportunity was taken to have certain alterations and additions to accommodation carried
out at a cost of $29,511. Consequently, although the ship repairer had commenced
operations under a contract involving a consideration of $43,346, the total cost of the
work performed before the ship returned to service in June 1963 was $130,851. As the
original Treasury Board authority, including the contingency allowance of $35,500, had
been exceeded by $52,005, it was necessary for the Department to make a further sub-
mission to the Board covering this amount so that the contractor could be paid. The
submission was not made until November 1963. The ex post facto approval of the Board
was received in the following month and the contractor was paid the amount of $87,505 by
which total costs exceeded the contract price.
86. Contracts for cleaning of public premises. During the past decade there has been a
marked increase in the number of contracts entered into for the cleaning and caretaking
of Crown-owned or leased premises and in the number of firms competing for such
contracts. The business has become highly competitive and recent experience of the
Department of Public Works, which administers many such contracts, has been that when
tenders are called prices quoted in the majority of cases have been lower than under
expiring contracts. Departmental policy has been to contract for a period of two years.
The Department of Transport also is a party to a number of like contracts and its
practice has been to invite tenders for the cleaning of airport terminal buildings at two
or three year intervals. This Department has also experienced lower prices in recent years
which have been attributed in part to adjustments of specifications.
An exception to the general policy of the Department of Transport was observed
during the year under review. In November 1963 the Department informed the Treasury
Board that the contract for the cleaning of the terminal building at the airport at Windsor,
Ontario, which had been for a term of three years, was due to expire. The Department
recommended that the existing contract be extended for a further two year period at an
annual cost of $26,675 compared with the previous rate of $27,000 per annum. However,
the Board, which had earlier commented on the competition prevalent in the building
AVD1TOR GENERAL'S REPORT 45
cleaning industry, initially declined to approve of the recommendation and directed that
tenders be called. In the interim another firm experienced in airport cleaning requirements
expressed interest in the Windsor undertaking and informed the Department that if there
were an opportunity to tender, its bid would likely be at the rate of about $21,600 per
annum. Despite this, the Treasury Board was again approached to authorize an extension
to the existing contract at the amended rate of $26,675 per annum and in January 1964
the Board assented.
87. Federal contribution to cost of jerry vessel. After studies had been made of
the need for extended water transportation services between the south and north shores
of the St. Lawrence River in the Rimouski and Baie Comeau area, a recommendation was
made to the Treasury Board in February 1961 for approval in principle of financial
assistance for construction and operation of a ferry between Rimouski and Baie Comeau.
The construction cost was estimated at $4,500,000 of which 40%, or $1,800,000, would have
been paid by way of a construction subsidy together with an operating subsidy of
$600,000 in the first year, to be reduced to nil by the end of ten years.
Before a decision was reached on this recommendation, a ten-year-old United
States-owned ferry boat which had become redundant on completion of a bridge over the
Straits of Mackinac was offered for sale. Subsequently the Department of Transport
received a request for a capital subsidy from a company which proposed to acquire this
vessel for the purpose of operating a ferry service between Baie Comeau and Point-au-
Pere. In August 1961 the Treasury Board gave approval in principle to the granting of a
subsidy, but in doing so emphasized that it considered a service of this nature to be
primarily a provincial responsibility. The Board was prepared to make an exception in
this particular case, however, because it was "in hand and under active consideration
before the Board recommended to Cabinet a report on federal assistance to ferry and
coastal services under the principles of which intra-provincial ferry services that are
essentially highway links — chiefly services involving roll-on/roll-off ferries — are considered
to be a matter of provincial responsibility".
In October 1961 the Treasury Board granted formal approval of a capital subsidy in
a lump sum to a maximum of $1.5 million, based on the aggregate of the actual cost of
purchase, an amount to cover necessary repairs and alterations, certain furnishings and
possibly customs and related charges. The company proceeded to purchase the vessel and
to renovate it, at a total cost of $2,429,800, including $863,650 for customs duties and
sales tax. An additional special duty assessment of $1,727,300, representing 50% of the
valuation of $3,454,600 established by the Department of National Revenue for customs
purposes, was levied but remitted by the Governor in Council in December 1961 under
authority of section 22 of the Financial Administration Act. By January 1962, when an
agreement relating to the subsidy was entered into by the Canadian Maritime Commission
and the company, the Treasury Board had decided that the subsidy of $1.5 million
should be on the basis of five equal annual instalments of $300,000 without interest
rather than a lump sum, and this condition was embodied in the agreement. This course
n? of action was decided upon by the Board "so that the federal contribution would match
46 AUDITOR GETSERAUS REPORT
the provincial undertaking to pay an operating subsidy during the first five years of the
operation of this vessel." We have been informed that the provincial assistance takes
the form of a subsidy which covers the previous year's operating deficit up to a maximum
of $50,000.
Because payment of the capital subsidy was to be spread over a five year period, and
since the equity of the owners in the enterprise was comparatively small (a balance sheet
of the company at September 30, 1963 showed paid-up capital of $180,100), the company
was obliged to borrow heavily and in consequence incurred interest charges which led to a
difficult financial situation. Following representations by the company, the Treasury
Board agreed to a total subsidy payment of $600,000 during the fiscal year 1962-63, the
additional $300,000 to be in lieu of the final payment otherwise payable in January 1966.
Representations continued to be made by the company and in December 1963 it
announced its intention to suspend operations of the vessel early in 1964 for the
uneconomic winter season, claiming that its financial position prevented it from main-
taining an uninterrupted service. This proposed step precipitated further consideration
of the company's requests and the outcome was that in March 1964, by which time
$1,200,000 of the total subsidy of $1.5 million had been paid, Executive approval of a
full subsidy of $2,363,650 was given, the balance of $1,163,650 to be paid from funds
provided specifically for the purpose in Supplementary Estimates for 1963-64 for Steam-
ship Subventions for Coastal Services. The amount was clearly based on the final subsidy
instalment of $300,000 otherwise due in January 1965 plus the amount of $863,650 paid
in respect of customs duties and sales tax at the time that the ship was acquired. As the
customs duty and sales tax had already been paid by the company, the additional payment
of $863,650 was in reality a refund of the duties paid instead of a remission. If it had been
treated as a remission it would have been subject to the requirements of section 22 of the
Financial Administration Act and in consequence the nature of this element of the
subsidy would have been recorded in the Public Accounts in accordance with subsection
(8) of section 22.
The payment of the subsidy was made conditional on the company retaining owner-
ship of the vessel and operating it in the performance of the ferry service for a five year
period commencing on January 2, 1962 and not making any application for transfer of
registry of the vessel out of Canadian registry during the same period, unless with the
prior consent of the Canadian Maritime Commission. Otherwise, the company is obligated
to repay the full subsidy with interest. When the agreement relating to the subsidy was
entered into by the Maritime Commission and the company in January 1962, the
company was required to provide security for the performance of all its terms and condi-
tions in the form of a second mortgage on the ship, which was subject to a first mortgage in
the amount of $900,000. The secondary nature of the security is recorded in the agree-
ment relating to the subsidy and mention of such agreement is made in the mortgage
instrument. With the $300,000 balance remaining out of the original subsidy of $1.5
million, together with the additional subsidy of $863,650, the company refinanced its
mortgage indebtedness whereupon the Crown mortgage was rated as a first mortgage.
However, in order that a new first mortgage for $350,000 could be registered as such, the
AUDITOR GE1SERAUS REPORT 47
Crown mortgage was discharged and replaced by a new second mortgage which was
registered on August 14, 1964. The security held by the Crown covering its total capital
subsidy of $2,363,650 is therefore still subject to a first mortgage, now in the amount of
$350,000, given with respect to other indebtedness of the company.
88. Defalcation at Gander International Airport. During the year under review the
closing out of a bank imprest account which had been maintained by the Department of
Transport at Gander International Airport for the purpose of making local disbursements
led to the discovery that revenues accruing to the Crown had been misappropriated
during the period March 1951 to June 1963 to the extent of $42,800. The defalcation was
concealed in the earlier years by altering duplicate deposit slips and utilizing subsequent
collections to cover amounts previously misappropriated. Such methods eventually
became unwieldy and the bank imprest account was resorted to as a source from which
funds to cover the shortage were obtained. This was possible only because of a breakdown
in the normal procedures for the operation of a governmental bank account.
The internal audit procedures of the Department have since been reviewed and
supplemented to include additional tests of bank transactions which in our opinion should
result in the early detection of any misappropriation of this type. The Audit Office work
programs in respect of activities of a like nature to those at Gander have also been
appraised to ensure that they are reasonable and adequate in the circumstances.
A charge has been laid against the departmental employee involved in the case.
The amount of the loss which has been charged to the Public Officers Guarantee Account
appears in the Statement of Losses (Public Accounts, page 43-29).
89. Aivards under the Pension Act. Reference was made in our 1960 Report to
certain administrative practices which it was thought warranted parliamentary attention,
to inconsistencies in this Act, and to the difficulty in determining whether certain pay-
ments, particularly those in respect of discretionary and compassionate awards and
awards to persons in a dependent condition, were in conformity with the provisions of
the Act. In 1961 the Public Accounts Committee, after studying the comments, made
certain recommendations in its Fifth Report 1961 which led to the administrative
practices referred to being corrected but did not result in amending legislation to eliminate
the inconsistencies or clarify the ambiguities referred to. These comments, together with
further inconsistencies in the Act referred to in the 1962 Report, were again reviewed by
the Public Accounts Committee in 1964. In its Eighth Report 1964 (see Appendix 1,
item 45) the Committee made the following recommendations:
(a) that the extent of the powers delegated to the Commission under section 25 of the Act,
"to grant a compassionate pension, allowance or supplementary award in any case
that it considers to be specially meritorious" where the applicant is otherwise unqualified
to receive such an award, be clarified by defining the term "specially meritorious";
(6) that the ambiguity under the Act whereby section 40 (2) appears to contemplate that a
pension in respect of death of a member of the forces be limited to a single class of
recipient whereas other sections of the Act provide that payments in respect of a death
48 AUDITOR GENERAL'S REPORT
may be made concurrently to a widow (section 37), children (section 26) and parents
(section 38), be eliminated;
(c) that the inconsistency apparent under section 38 of the Pension Act where pensions
awarded to widowed mothers under subsection (3) thereof, which requires that the
parent must be incapacitated by mental or physical infirmity from earning a livelihood,
are by reason of subsection (7) being continued in payment even though the widowed
mothers have subsequently been able to undertake full-time employment, be removed;
(d) that consideration be given to adding a section to the Pension Act similar to section 18
of the War Veterans Allowance Act to deal with cases where it appears to the Commis-
sion that there had been a deliberate disposal of property for the purpose of qualifying
for a dependent parent award;
(e) that, having regard for section 40 (1) of the Pension Act which provides that no person
shall be awarded more than one pension in respect of death, the Commission reconsider
the legality of its decision to permit an award to a dependent parent of a second pension
in respect of the death of a child after the rights to a pension awarded in respect of the
death of another child have been lost under the terms of section 45 (2) of the Act.
90. Civilian war pensions and allowances. The Civilian War Pensions and Allowances
Act, R.S., c. 51, was amended in 1962 (chapter 11), by the addition thereto of Part XI
which made available to designated groups of civilians associated with the war effort
the same allowances that are available to war veterans. It was pointed out in last year's
Report (paragraph 89) that the Old Age Assistance Act, the Blind Persons Act and the
Disabled Persons Act contain provisions that no payment may be made to a recipient of
an allowance under the War Veterans Allowance Act, but that no provisions have yet
been made to prohibit payments to recipients of civilian war allowances. The situation
remains unchanged.
91. War veterans allowances. In our 1962 Report the comment was made that action
was seldom recommended by the War Veterans Allowance Board to enforce the provisions
of the Act and its Regulations relating to financial penalties or imprisonment, or both, for
making false or misleading statements or failing to disclose pertinent information which
might have a bearing on the amount of an award. The view was expressed that unless the
Act was amended to provide heavier penalties which the Board is prepared to enforce,
deliberate deceptions of this type can be expected to continue. Attention was also drawn
to two anomalies in the application of the War Veterans Allowance Act and Regulations:
(a) that the definition of "personal property" in the regulations makes no mention of
mortgages or agreements for sale, and, as a result, allowances are being made available to
some whose sizeable holdings of mortgages or agreements for sale would preclude their
qualifying were their assets in another form; and (b) that proceeds from the sale of a
recipient's home were not considered to be personal property for a year after the date of
sale, even w T hen a new less expensive residence or a residence subject to a mortgage was
purchased shortly after his former home was sold, thus allowing the continuation of
payment of allowances in cases where the recipient was in possession of assets in excess
of those permitted by the Act.
AUDITOR GENERAL'S REPORT 49
The 1963 Report (paragraph 88) reiterated these comments and noted that there
had been an increase in the number of persons affected because an amendment (1962,
chapter 11) to the Civilian War Pensions and Allowances Act provided for payment of the
same allowances to certain civilians. It also drew attention to the problems encountered
in respect of income of children where children are involved in awards, because of
inconsistencies in the provisions of the Act on the one hand, and in the application given
to provisions of the Act on the other hand. The table of allowances, Schedule A of the Act,
sets out in column III the maximum total annual incomes, including allowances, which
the various classes of recipients may receive. Where the spouse is recognized as the
dependent (Classes 2 and 4), the schedule shows the total permissive income followed by
the words "total for veteran and spouse", whereas where the child is recognized as the
dependent (Class 3) the amount appears without restrictive or qualifying wording; thus,
for this latter class, the Board has concluded, no income other than that of the recipient
was intended to apply and none is being taken into account in determining the allowance
payable to the recipient. In consequence, there is an inconsistency in that, while an
increased allowance for maintenance is payable in both cases because of a dependent, the
income of one class of dependent is taken into account while the income of another
class is not.
One of the classes of income the Act exempts for purposes of calculating the maximum
permissive income of a recipient is money or assistance received from any province or
municipality by way of relief to dependent children. A portion of the social assistance
payments made to the head of a household has been exempted by considering it relief to
dependent children. While it is mathematically possible to determine the increments that
are paid because of the children, the approach under welfare legislation is to consider the
needs of the family as a unit and, therefore, in our opinion, no part of this assistance
payment should be considered income of the dependent children. In law, it is maintenance
income of the head of the household and all of it should be taken into consideration in
determining the war veterans allowance entitlement of the recipient.
The Public Accounts Committee reviewed the above comments and in its Eighth
Report 1964 (see Appendix 1, item 46) made the following recommendations:
(a) the Committee, after taking note of the increasing number of overpayments arising
mainly from veterans making false or misleading statements, and of the fact that,
although 80 such cases had been referred to the Board by the Auditor General in 1962
and 1963, in none of these had legal action been instituted, recommends that all cases of
deliberate deception which come to notice be vigorously prosecuted ;
(6) that the Act should be amended to recognize mortgages receivable and agreements for
sale as either personal property or an interest in real property. In the meantime, where
it appears to the Board that the terms of a mortgage receivable or agreement for sale
are unrealistic in relation to the life expectancy of the individual and the going market
rates, the Board should deem the return from these assets to be at a reasonable monthly
rate;
(c) that in cases where the presence of a child is the reason for an award at married rates,
the income of the child, except income specifically exempted under the Act, be taken
into account in determining the amount of the award.
50 AUDITOR GENERAL'S REPORT
92. Unpaid accounts carried forward to new fiscal year. Four instances were noted in
which appropriations for 1963-64 were insufficient to meet accounts coming in course of
payment in that year. In each instance Parliament had been asked for supplementary
appropriations and these were granted by means of Supplementary Estimates (E) — the
final supplementary estimates of the year. However, the appropriations requested were
substantially less than the amounts required for payment of the accounts coming in
course of payment at the end of the year. The departments concerned are:
1. department of national defence. — Included in the 1963-64 Supplementary Estimates
(E) was an amount of $13,653,000 (Vote 35e) for Operation and Maintenance, Royal
Canadian Air Force. This amount was substantially short of the amount actually required
and accounts amounting to more than $12 million had to be carried forward and paid
out of funds appropriated for the year 1964-65.
2. department of mines and technical surveys (Dominion Coal Board). — Although the
1963-64 Supplementary Estimates (E) included an additional amount of $3,914,600
(Vote 140e) for payments in connection with movements of coal, this proved to be
substantially short of the amount required to meet claims that came in course of
payment to the close of the fiscal year. The result was that claims amounting to
$2,380,000 had to be carried forward to the fiscal year 1964-65.
3. department of finance. — The 1963-64 Supplementary Estimates (E) included an
additional amount of $2,800,000 (Vote 45e) for payment of municipal grants. This
amount was insufficient to cover the remaining grants which were approved for payment
in the fiscal year 1963-64 and grants totalling $806,503 had to be carried forward for
payment in 1964-65.
4 . department of national health and welfare. — Included in the 1963-64 Supplementary
Estimates (E) was an amount of $2,000,000 (Vote 25e) for the payment of hospital
construction grants to the Provinces and Territories. This amount was insufficient to
meet the remaining claims in the year under review, and claims totalling $458,000 had
to be carried forward and paid out of funds appropriated for the year 1964-65.
Another charge properly applicable to the fiscal year under review but which has
been carried forward as part of the current assets item "Departmental working capital
advances and revolving funds" is a balance of $2,555,000, included in "Agricultural
Commodities Stabilization Account" balance of $63,954,000 (see paragraph 97). This
is the amount by which the $122,235,000 provided by Appropriation Act, No. 2, 1964,
Department of Agriculture Vote 172e, the final supplementary estimates of the year,
fell short of meeting the loss of $124,790,000 (exclusive of administrative costs and the
estimated cost of major services provided without charge by government departments)
experienced by the Agricultural Stabilization Board during the year under review
(see also paragraph 163).
93. Losses reported in the Public Accounts. Section 98 of the Financial Administra-
tion Act directs that "every payment out of the Public Officers Guarantee Account and
the amount of every loss suffered by Her Majesty by reason of defalcations or other
fraudulent acts or omissions of a public officer, together with a statement of the circum-
stances, shall be reported annually in the Public Accounts".
AUDITOR GENERAL'S REPORT 51
The statements of losses included in the Public Accounts for 1963-64 were examined
and it was ascertained that every loss during the year, which had been observed in the
audit as being of a nature requiring to be reported in the Public Accounts in accordance
with the foregoing direction, had been included in the listings. Losses in departments
other than the Post Office numbered 21 and amounted to $81,364. Of these, 8 involving
$3,448 were recovered in full during the year, and partial recoveries of $23,330 were
obtained in other cases.
During the year the attention of the Treasury Board was directed to the fact that the
total of $168,263 shown as outstanding at March 31, 1963 in the "Summary" of losses
(1962-63 Public Accounts, page 37-14) contained 38 balances dating back as far as
1952-53 on which final action by way of adjustment, recovery, or charge to the Public
Officers Guarantee Account had not been reported. Of these, 14 balances have been
reviewed and further action is being reported in the 1963-64 Public Accounts involving
a net reduction of $11,691 in the amount outstanding.
Losses suffered by the Post Office Department in 1963-64 numbered 138 and
amounted to $91,735. Of these, 101 to a total of $53,526 were recovered in full and partial
recoveries totalled $14,021.
94. Non-productive payments. In its Fifth Report 1961 the Public Accounts Com-
mittee requested the Auditor General to include in his future annual Reports to the
House of Commons a listing of the non-productive payments which might have come to
his notice in the course of his audit.
After considering the listings of these non-productive payments which were included
in the 1962 Report and in Appendix 1 of the 1963 Report, the Committee expressed
concern at the increasing number which were being noted. It requested that the Auditor
General continue to include listings in his annual Reports of all non-productive payments
coming to his notice in the course of his audit.
In accordance with this request, a listing is given as Appendix 2 to this Report of the
payments that, in the absence of a precise definition, might be regarded as non-productive
in character which were observed in the course of the audit of expenditures for the fiscal
year 1963-64. It will be noted that there are 35 items listed in this appendix which
compares with 37 items listed in the previous year's Report.
The listing given in Appendix 2 does not detail non-productive payments noted in
the course of our examination of the accounts of Crown corporations. Details of these will
be found in the individual paragraphs in the Crown corporations' section of this Report.
Summary of Assets and Liabilities
95. The Statement of Assets and Liabilities as at March 31, 1964, with comparable
figures at the end of the preceding year, prepared by the Department of Finance for
inclusion in the Public Accounts and certified by the Auditor General in accordance with
section 64 of the Financial Administration Act, is reproduced as Exhibit 2 to this Report.
52 AUDITOR GENERAL'S REPORT
Assets
96. The following table lists the assets at March 31, 1964, by main headings in the
;ement of Assets and Liabilities, i
close of the two previous fiscal years :
Statement of Assets and Liabilities, in comparison with the corresponding balances at the
March 31, 1962 March 31, 1963 March 31, 1964
Current assets $ 1,246,179,000 $ 820,411,000 $ 1,287,063.000
Advances to the Exchange Fund Account . . 1,793,000,000 2,736,000,000 2,601,000,000
Sinking fund and other investments held for
retirement of unmatured debt 19,432,000 22,312,000 —
Loans to and investments in Crown cor-
porations 3,985,330,000 4,468,119,000 4,584,195,000
Loans to national governments 1,339,797,000 1,210,777,000 1,195,685,000
Other loans and investments 993,863,000 1,110,655,000 1,197,816,000
Securities held in trust 25,837,000 26,016,000 38,882,000
Deferred charges 727,826,000 936,644,000 400,361,000
Suspense accounts 136,000 136,000 141,000
Inactive loans and investments 94,824,000 94,824,000 94,824,000
Total recorded assets 10,226,224,000 11,425,894,000 11,399,967,000
Less — Reserve for losses on realization of
assets 546,384,000 546,384,000 546,384,000
Net recorded assets $ 9,679,840,000 $10,879,510,000 $10,853,583,000
97. Current assets. The balances included under this heading at March 31, 1964, with
the comparable balances at the close of the two previous years, were:
March 31, 1962 March 31, 1963 March 31, 1964
Cash $ 895,321,000 $ 511,347,000 $ 984,643,000
Departmental working capital advances and
revolving funds:
Agricultural Commodities Stabilization
Account 132,783,000 139,043,000 63,954,000
Defence Production Revolving Fund 27,297,000 39,068,000 27,791,000
Bullion and coinage accounts 20,655,000 27,212,000 29,401,000
Stockpiling of uranium concentrates — — 13,537,000
Other 42,645,000 37,944,000 34,123,000
223,380,000 243,267,000 168,806,000
Securities held for the Securities Investment
Account 94,608,000 33,480,000 99,860,000
Other current assets 32,870,000 32,317,000 33,754,000
$ 1,246,179,000 $ 820,411,000 $ 1,287,063,000
AUDITOR GENERAL'S REPORT 53
The $63,954,000 balance of the Agricultural Commodities Stabilization Account at
March 31, 1964 was $75,089,000 less than the corresponding amount at the end of the
preceding year due to a sharp reduction in inventories of butter and pork and to the write-
off of an inventory revaluation loss of $50,845,000 and a fire loss of $5,032,000.
The decrease of $11,277,000 in the government's equity in the Defence Production
Revolving Fund was due to deliveries of defence supplies to customers during the year
and to a substantial increase in accountable advances received from customers. In addition,
the working capital advance to Canadian Arsenals Limited was reduced by $1 million.
The amount of $13,537,000 for stockpiling of uranium concentrates represents charges
in 1963-64 to Department of Trade and Commerce Vote L63c which provided $20,000,000
for the acquisition in the 1963-64 and 1964-65 fiscal years of uranium concentrates by
Eldorado Mining and Refining Limited on behalf of Her Majesty in right of Canada and
for the cost of stockpiling the uranium concentrates so acquired.
The $99,860,000 balance of the Securities Investment Account represents, at amor-
tized cost, temporary holdings of securities of Canada by the Minister of Finance under
the authority of section 17 of the Financial Administration Act. The large increase,
$66,380,000, over the corresponding balance at the close of the preceding year was due
mainly to a substantial holding of Government of Canada treasury bills at March 31,
1964.
98. Advances to the Exchange Fund Account. This Account is operated by the Bank
of Canada on behalf of the Minister of Finance, and advances are made by the Minister
from time to time within the maximum ($3,000,000,000 at March 31, 1964) authorized
by the Governor in Council under section 23 of the Currency, Mint and Exchange Fund
Act, R.S., c. 315. The advances to the Account at each year-end are included in the State-
ment of Assets and Liabilities at their total, less repayments, with a parenthetical note
giving the market value of the investments from the advances. Thus at March 31, 1964
the amount shown for Advances to the Exchange Fund Account was $2,601,000,000,
being the total of the advances less repayments, whereas the market value of investments
from advances was $2,631,200,000, indicating an unrecorded surplus of $30,200,000. By
comparison, at the close of the preceding year there was an unrecorded surplus of
$21,046,000.
A summary of the transactions in the Account for its financial year ended December
31, 1963 is included in paragraph 177 of this Report.
99. Sinking fund and other investments held for retirement of unmatured debt. This
item represented the investments held for the sinking fund maintained with respect to
Newfoundland loans which were assumed under the Terms of Union. The loans reached
maturity during the fiscal year under review and the sinking fund was closed out.
54
AUDITOR GENERAL'S REPORT
100. Loans to and investments in Crown corporations. The following schedule shows
the nature of these loans and investments at March 31, 1964:
Central Mortgage and Housing Corporation
Canadian National Railways !
The St. Lawrence Seaway Authority
Farm Credit Corporation
National Harbours Board
Export Credits Insurance Corporation
Canadian Overseas Telecommunication Cor-
poration
Atomic Energy of Canada Limited
National Capital Commission
Polymer Corporation Limited
Northern Canada Power Commission
Eldorado Mining and Refining Limited
Canadian Arsenals Limited
Bank of Canada
Canadian Commercial Corporation
Canadian Broadcasting Corporation
Canadian National Railways — re Yarmouth-
Bar Harbour ferry
Canadian National (West Indies) Steam-
ships Limited 1,000
Canadian Patents and Development Limited 296,000
Capital stock
at cost
Advances
Total
$ 1,916,142,000
$ 1,916,142,000
$ 995,533,000
415,353,000
1,410,886,000
415,761,000
415,761,000
338,873,000
338,873,000
198,134,000
198,134,000
5,000,000
53,375,000
58,375,000
55,462,000
55,462,000
15,000,000
38,660,000
53,660,000
52,987,000
52,987.000
30,000,000
30,000,000
22,388,000
22,388,000
8,247,000
8,247,000
7,500,000
7,500,000
5,920,000
5,920,000
5,500,000
5,500,000
3,000,000
3,000,000
739,000
324,000
739,000
325,000
296,000
$ 1,059,997,000 $ 3,524,198,000 $ 4,584,195,000
The total of $4,584,195,000 (an increase of $116 million over the previous year) does
not represent the total equity of the Government of Canada in its Crown corporations at
March 31, 1964. This equity, in fact, amounted to $6,088,172,000 as shown by their
individual financial statements published in Volume III of the Public Accounts. The
principal reason for this is that the Government of Canada maintains its accounts
on a modified cash basis which does not provide for recording as assets such items as
surpluses of Crown corporations or the cost of capital assets which were charged by the
Government as expenditure. In no sense does the Statement of Assets and Liabilities of
the Government of Canada purport to be a consolidation including the accounts of its
wholly-owned corporations. On the other hand, the corporations maintain their individual
accounts on the accrual accounting basis followed in commercial practice, and in a
number of cases have fiscal years conforming to the cycle of their individual operations
rather than the April 1 to March 31 fiscal year used by the Government.
The excess of $1,503,977,000 existing at March 31, 1964 as a result of the foregoing
is reconciled and explained in Appendix 12 to be found in Section 9 of Volume I of the
Public Accounts, entitled "Government of Canada Equity in Crown Corporations as at
March 31, 1964".
AUDITOR GENERALS REPORT 55
The advances to Central Mortgage and Housing Corporation increased by $113
million resulting from additional advances of $120 million, less repayments of $68 million,
pursuant to section 22 of the Central Mortgage and Housing Corporation Act, R.S., c. 46,
together with advances of $79 million, less repayments of $16 million, in respect of Federal-
Provincial projects. Other advances were repaid to the extent of $2 million.
The total for Canadian National Railways reflects a decrease of $28 million during
the year due to repayments of $53 million of previous years' advances, offset to the extent
of $25 million by a further investment in 4% preferred stock in the company pursuant
to section 12 of the Canadian National Railways Financing and Guarantee Act, 1962-63,
1963, c. 31.
The amount shown for The St. Lawrence Seaway Authority reflects an increase of
$25 million comprising additional loans during the year of $11 million and a net increase
of $14 million in deferred interest on loans (see paragraphs 112 and 159).
The amount for Farm Credit Corporation shows an increase of $70 million over the
preceding year due to further loans of $67 million under the Farm Credit Act, 1959, c. 43,
and an additional $3 million subscription to the capital of the Corporation by the Govern-
ment under section 12 of the Act.
The amount shown for Export Credits Insurance Corporation reflects an increase of
$23 million in advances to enable the Corporation to provide financing for long-term
export sales of capital goods.
The $53 million shown for National Capital Commission represents an increase of
$12 million in loans to the Commission for the purpose of acquiring additional property
in the National Capital Region.
Loans to Northern Ontario Pipe Line Crown Corporation which amounted to
$110,555,000 at March 31, 1963 were repaid in full during the year under review following
the sale of the Northern Ontario section of the all-Canadian natural gas pipe line.
101. Loans to national governments. The following is a listing of the balances of
these loans at March 31, 1964 in comparison with the corresponding balances at the close
of the two previous years :
March 31, 1962 March 31, 1963 March 31, 1964
Belgium $ 34,605,000 $ 32,298,000 $ 29,991,000
France 135,200,000 67,600,000 67,600,000
India 24,831,000 20,117,000 25,424.000
Netherlands 68,850,000 32,130,000 32,130,000
United Kingdom 1,074,476,000 1,057,045,000 1,039,277,000
Other countries 1,835,000 1,587,000 1,263,000
$ 1,339,797,000 $ 1,210,777,000 $ 1,195,685,000
36 AUDITOR GENERAL'S REPORT
The reduction of $15 million during the year under review was due to a repayment
of $18 million by the United Kingdom on its loan authorized by the United Kingdom
Financial Agreement Act of 1946. Although India repaid $5 million of its loan for the
purchase of wheat and flour, the balance at March 31, 1964 shows an increase of $5 million
due to a loan of $10 million for the purchase in Canada of aircraft and associated spare
parts. No payments were due from France or the Netherlands during the year because
of the special payments made during the previous year.
102. Other loans and investments. The balances comprising this asset item at March
31, 1964, with the comparable balances at the end of the two previous years, were:
March 31, 1962 March 31, 1963 March 31, 1964
Subscriptions to capital of and working
capital advances and loans to interna-
tional organizations $ 659,936,000 $ 693,998,000 $ 702,130,000
Veterans' Land Act advances 207,953,000 224,486,000 243,327,000
Less— Reserve for conditional benefits 30,598,000 28,467,000 26,357,000
177,355,000 196,019,000 216,970,000
Loans to provincial governments 97,879,000 116,818,000 113,652,000
Temporary loans to Old Age Security Fund — 41,679,000 99,960,000
Housing projects for the Canadian Forces 6,430,000 12,514,000 17,930,000
Balances receivable under agreements of
sale of Crown assets 10,622,000 8,303,000 5,959,000
Other balances 41,641,000 41,324,000 41,215,000
$ 993,863,000 $ 1,110,655,000 $ 1,197,816,000
The following is a listing of the balances comprising the $702,130,000 shown for the
first item in the above table as at March 31, 1964:
Subscriptions to capital:
International Monetary Fund $ 577,250,000
International Bank for Reconstruction and Development 80,483,000
International Development Association 32,798,000
International Finance Corporation 3,522,000
694,053,000
Working capital advances and loans 8,077,000
$ 702,130,000
During the year, Canada subscribed an additional $8 million to the capital of the
International Development Association.
AUDITOR GENERAUS REPORT 57
The increase of $58,281,000 in temporary loans to the Old Age Security Fund rep-
resents the deficit resulting from transactions during the fiscal year 1963-64 in the
special account provided for by section 11 of the Old Age Security Act, R.S., c. 200. The
following is a summary of the transactions relating to the Fund during the past three
years :
1961-62 1962-63 1963-64
Collections of tax
On sales $ 284,879,000 $ 302,239,000 $ 331,760,000
On personal incomes 258,950,000 273,650,000 302,600,000
On corporation incomes 100,125,000 115,250,000 115,750,000
643,954,000 691,139,000 750,110,000
Payments of pensions under the Old Age Security
Act 625,107,000 734,382,000 808,391,000
Deficiency (surplus) for the year (18,847,000) 43,243,000 58,281,000
Preceding year's balance brought forward 17,283,000 (1,564,000) 41,679,000
Deficit (surplus) at year-end $ (1,564,000) $ 41,679,000 $ 99,960,000
103. Securities held in trust. The amount of $38,882,000 shown under this heading
represents securities held for the following accounts : guarantee deposits in respect of oil
and gas permits, $21,308,000; contractors' securities, $6,607,000; guarantee deposits in
respect of customs duties and excise taxes, $4,763,000; securities held for pilots' pension
funds, $4,209,000; and other, $1,995,000.
104. Deferred charges. The balances included under this heading at March 31, 1964,
with the comparable balances at the close of the two previous years, were:
March 31, 1962 March 31, 1963 March 31, 1964
Unamortized portion of actuarial deficiencies —
Public Service Superannuation Account $ 276,661,000 $ 276,661,000 $ 276,661,000
Canadian Forces Superannuation Account 326,300,000 524,849,000 —
Royal Canadian Mounted Police Superannuation
Account 3,533,000 3,533,000 —
606494,000 805,043,000 276,601,000
Unamortized loan flotation costs 121,332,000 131,601,000 123,700,000
$ 727,826,000 $ 936,644,000 $ 400,361,000
The amounts appearing under the heading "Unamortized portion of actuarial defi-
ciencies" represent the balances of amounts credited to the superannuation accounts to
58 AUDITOR GENERAL'S REPORT
cover actuarial deficiencies in those accounts with offsetting charges to this "Deferred
charges" account. In the fiscal year ended March 31, 1964 the balances in this account
pertaining to the Canadian Forces and the Royal Canadian Mounted Police were written
off to net debt as an accounting adjustment in respect of prior years' transactions.
The item "Unamortized loan flotation costs" records the unamortized portion of the
cost of discounts and commissions incurred in the issuance of loans. The following is a
summary of the transactions for the year under review :
Balance, April 1, 1963 $ 131,601,000
Add:
Costs incurred in issuing new loans during the year 39,058,000
Adjustments due to cancellations, exchanges, conversions and additional issues of
existing loans 4,237,000
174,896,000
Deduct :
Amortization charges included in 1963-64 expenditure 51,196,000
Balance, March 31, 1964 $ 123,700,000
105. Suspense accounts. The $141,000 shown for this item on the assets side of the
Statement represents the balance of the Cheque Adjustment Account, which reflects the
total of the individual balances that remained unadjusted in the process of reconciling
payments to the chartered banks for redemption of paid cheques with the relative amounts
as subsequently determined. The balance includes amounts relating to the fiscal years
1942-43 to 1961-62 (see paragraph 124).
106. Inactive loans and investments. The $94,824,000 shown for this item in the
Statement at March 31, 1964, unchanged from the two previous years, comprised the
following balances :
Loan to China, in 1946, under the Export Credits Insurance Act $49,426,000
Loans to Greece and Roumania, in 1919, for the purchase of goods produced in
Canada 30,854,000
Balance arising out of implementation of guarantee, given under the Export Credits
Insurance Act, of loans by chartered banks to Ming Sung Industrial Company
(carrying prior guarantee by the Government of China) 14,470,000
Loan to Province of Saskatchewan, in 1908, for the purchase of seed grain — last
payment received in 1959-60 74,000
$94,824,000
AUDITOR GENERAL'S REPORT 59
Liabilities
107. The following table lists the liabilities at March 31, 1964 by main headings in
the Statement of Assets and Liabilities in comparison with the corresponding balances
at the close of the two previous fiscal years:
March 31, 1962 March 31, 1963 March 31, 1964
Current and demand liabilities $ 1,234,244,000 $ 1,631,478,000 $ 1,619,961,000
Deposit and trust accounts 266,624,000 225,203,000 196,454,000
Annuity, insurance and pension accounts . . . 4,245,942,000 4,747,017,000 5,131,054,000
Undisbursed balances of appropriations to
special accounts 115,135,000 119,952,000 111,601,000
Deferred credits 94,991,000 107,739,000 119,447,000
Suspense accounts 5,305,000 6,055,000 5,118,000
Unmatured debt 16,945,736,000 17,961,836,000 18,740,097,000
$22,907,977,000 $24,799,280,000 $25,923,732,000
108. Current and demand liabilities. The balances comprising this item in the State-
ment at March 31, 1964, in comparison with the corresponding balances at the close of
the two previous years, were:
March 31, 1962 March 31, 1963 March 31, 1964
Non-interest bearing notes payable to the
International Monetary Fund and the
International Development Association . .$ 372,032,000 $ 757,284,000 $ 586,996,000
Accounts payable 280,711,000 267,364,000 342,673,000
Outstanding treasury cheques 265,821,000 266,549,000 319,894,000
Interest accrued 174,601,000 196,974,000 215,973,000
Interest due 73,846,000 79,461,000 91,894,000
Matured debt 36,439,000 32,467,000 26,820,000
Other balances 30,794,000 31,379,000 35,711,000
$ 1,234,244,000 $ 1,631,478,000 $ 1,619,961,000
95480—5
60 AUDITOR GENERAUS REPORT
109. Deposit and trust accounts. The following is a listing of the balances included
in this item at March 31, 1964 in comparison with the corresponding balances at the
close of the two previous fiscal years:
March 31, 1962 March 31, 1963 March 31, 1964
Indian trust funds $ 28,523,000 $ 28,877,000 $ 29,167,000
Guarantee deposits 10,403,000 12,505,000 27,375,000
Post Office Savings Bank 27,365,000 25,880,000 24,605,000
Deposits by Crown corporations 24,175,000 30,004,000 13,650,000
Canadian Pension Commission (Administration
trust fund) 12,087,000 13,024,000 13,490,000
National Harbours Board 7,592,000 7,855,000 13,320,000
Instalment purchase of bonds by public service
employees 12,416,000 12,297,000 12,535,000
Contractors' holdbacks 17,793,000 17,724,000 8,604,000
Contractors' security deposits 18,003,000 13,025,000 7,961,000
Korean operations pool 16,117,000 16,117,000 —
Other balances 92,150,000 47,895,000 45,747,000
$ 266,624,000 $ 225,203,000 $ 196,454,000
The substantial increase in the balance shown for the item "Guarantee deposits" is
largely due to amounts deposited with the Department of Northern Affairs and National
Resources as guarantees for oil, mineral and timber rights and licences.
The balance of $24,605,000 shown for the Post Office Savings Bank is the amount
on deposit in 301,024 depositors' accounts — a drop of $1,275,000 and 253 accounts during
the year. Interest is paid on the amounts on deposit at a rate of 2Jr%.
The reduction of $16 million in deposits by Crown corporations was due to repayment
of the deposit of Atomic Energy of Canada Limited, of which $14 million was applied
as a reduction in capital stock.
The decrease of $9,120,000 in contractors' holdbacks is mainly attributable to a
lessened tempo of construction activity.
The sharp decrease in the amount of contractors' security deposits is largely due
to an extension in the use of surety bonds in recent years coupled with a decline in
expenditures under contracts for which security is normally required.
The accounts of the Korean operations pool were maintained by the Australian
Government and recorded the expenditures incurred by the Commonwealth countries
which had participated in the Korean war, and the apportionment of these expenditures
among the countries according to their respective shares. A final accounting was made
during the fiscal year ended March 31, 1964 with Canada making a final payment of
$11 million. The balance in the account was cleared to non-tax revenue.
AVDITOR GENERAL'S REPORT 61
The $45,747,000 shown for "Other balances" at March 31, 1964 represents the total
of 86 balances, including: Veterans' trust funds, $7,985,000; Army Benevolent Fund,
$5,779,000; deposits by the Government of the United States of America to cover
expenditures to be made on its behalf, $5,084,000; deferred pay of Armed Forces person-
nel, $3,747,000; common school funds, $2,678,000; prepayments to Royal Canadian Mint
for coin sets, $2,551,000; Northwest Territories revenue account, $2,356,000; National
Research Council special fund, $2,276,000; and Emergency Gold Mining Assistance
holdbacks, $2,161,000.
110. Annuity, insurance and pension accounts. The balances making up this item at
March 31, 1964, in comparison with the corresponding balances at the close of the two
previous years, are given in the following table :
March 31, 1962 March 31, 1963 March 31, 1964
Government Annuities Account $ 1,235,305,000 $ 1,264,436,000 $ 1,284,262,000
Public Service Superannuation Account 1,586,929,000 1,724,116,000 1,856,408,000
Canadian Forces Superannuation Account . . 1,279,239,000 1,605,797,000 1,821,525,000
Royal Canadian Mounted Police Super-
annuation Account 32,136,000 37,284,000 45,987,000
Other balances 112,333,000 115,384,000 122,872,000
$ 4,245,942,000 $ 4,747,017,000 $ 5,131,054,000
The transactions during the year ended March 31, 1964 in each of the Accounts listed
above are summarized as follows :
Government Annuities Account
Balance, April 1, 1963 $ 1,264,436,000
Add:
Premiums received $ 29,413,000
Interest credits 48,383,000
77,796,000
1,342,232,000
Deduct :
Vested annuity and commuted value payments and refunds 57,092,000
Transfer to Revenue of the excess over Fund valuation .... 878,000
57,970,000
Balance, March 31, 1964 $ 1,284,262,000
95480— 5i
62 AUDITOR GENERALS REPORT
Public Service Superannuation Account
Balance, April 1, 1963 $ 1,724,116,000
Add:
Contributions by participants $ 59,939,000
Contributions by Government 57,015,000
Interest credits 71,756,000
Other credits 390,000
Deduct :
Annuity payments 47,824,000
Withdrawals of contributions 8,410,000
Other charges 574,000
189,100,000
1,913,216,000
56,808,000
Balance, March 31, 1964 $ 1,856,408,000
See paragraph 123 of this Report with respect to the actuarial valuation of this Account.
Canadian Forces Superannuation Account
Balance, April 1, 1963 $ 1,605,797,000
Add:
Contributions by participants $ 36,054,000
Contributions by Government 136,155,000
Interest credits 66,308,000
Other credits 176,000
Deduct :
Annuity payments 13,365,000
Gratuities and withdrawal allowances 9,531,000
Other charges 69,000
238,693,000
1,844,490,000
22,965,000
Balance, March 31, 1964 $ 1,821,525,000
Royal Canadian Mounted Police Superannuation Account
Balance, April 1, 1963 $37,284,000
Add:
Contributions by participants $ 1,795,000
Contributions by Newfoundland 17,000
Contributions by Government 5,887,000
Interest credits 1,577,000
Deduct :
Annuities and allowances payments 365,000
Termination payments 205,000
Other charges 3,000
9,276,000
46,560,000
573,000
Balance, March 31, 1964 $45,987,000
AUDITOR GENERAL'S REPORT 63
Included in "Other balances" is an amount of $1,671,000 at March 31, 1964 for the
Members of Parliament Retiring Allowances Account. The transactions in this Account
during the year are summarized as follows:
Balance, April 1, 1963 $ 1,295,000
Add:
Contributions by participants $ 253,000
Contributions by Government 377,000
Interest credits 57,000
687,000
1,982,000
Deduct :
Annual allowances 298,000
Withdrawal allowances 13,000
311,000
Balance, March 31, 1964 $ 1,671,000
Also included in "Other balances" is the $16,796,000 uninvested portion of the
Unemployment Insurance Fund on deposit with the Receiver General. A summary of
the transactions in the Fund during the year under review, in comparison with the
corresponding amounts for the two previous fiscal years, is given in paragraph 184.
111. Undisbursed balances of appropriations to special accounts. The following is a
listing of the balances included in this item in the Statement of Assets and Liabilities,
compared with the corresponding balances at the close of the two previous fiscal years:
March 31, 1962 March 31, 1963 March 31, 1964
Colombo Plan Fund $ 77,626,000 $ 85,325,000 $ 84,451,000
Railway Grade Crossing Fund 33,754,000 26,703,000 17,649,000
National Capital Fund 3,660,000 6,776,000 6,426,000
Centennial of Confederation Fund — 1,000,000 3,000,000
Other 95,000 148,000 75,000
$ 115,135,000 $ 119,952,000 $ 111,601,000
During the year ended March 31, 1964 an amount of $41,500,000, provided by
Department of External Affairs Vote 55, was credited to the account for the Colombo
Plan, while expenditures totalling $42,374,000 were charged to the account for aid given
to countries in South and South-East Asia.
Amounts totalling $5,100,000, provided under section 265 of the Railway Act, R.S.,
c.234, and Department of Transport Vote 212, were credited to the account for the
Railway Grade Crossing Fund during 1963-64, while expenditures totalling $14,154,000
were incurred in aiding in the cost of installing protective devices at railway grade
crossings, grade separations and reflective markings on the sides of railway cars.
64 AUDITOR GENERAL'S REPORT
During the year ended March 31, 1964 an amount of $7,500,000, provided by Depart-
ment of Public Works Vote 220, was credited to the account for the National Capital
Fund, while amounts totalling $7,850,000 were charged to the account for payments to
the National Capital Commission to finance the cost of capital projects approved by
the Governor in Council.
Reference is made to the Centennial of Confederation Fund in paragraph 143 of
this Report.
112. Deferred credits. The following is an analysis of this item at the close of the
1963-64 fiscal year and the two previous years:
March 31, 1962 March 31, 1963 March 31, 1964
Deferred interest on loans to The St. Lawrence
Seaway Authority $ 33,716,000 $ 49,388,000 $ 63,761,000
Deferred interest on loans made under the United
Kingdom Financial Agreement Act, 1946 44.174,000 44,174,000 44,174,000
Equity in agency account of Crown Assets Disposal
Corporation 7,242,000 5,884,000 5,173,000
Credits arising from the recording of agreements of
sale of Crown assets 8,772,000 6,743,000 4,702,000
Other balances 1,087,000 1,550,000 1,637,000
i
$ 94,991,000 $ 107,739,000 $ 119,447,000
The only significant change during the year was the increase of $14,373,000 in the
deferred interest on loans to The St. Lawrence Seaway Authority. During the year the
Authority paid $2,500,000 on account of interest previously deferred, while payment of
interest for the year 1963, amounting to $16,873,000, was in turn deferred. This deferred
interest is payable by the Authority over a 45 year period commencing in 1965, along
with repayments of principal (see paragraph 159).
113. Suspense accounts. There was no appreciable change in this item on the liabili-
ties side of the Statement during the year ended March 31, 1964. The year-end figure of
$5,118,000 included balances of $1,306,000 for the unclaimed cheques account and
$1,012,000 for the National Defence replacement of materiel account. During the year
credits to the latter account totalled $362,000 for the proceeds of sales to other countries
pursuant to section 11 of the National Defence Act, while an amount of $472,000 was
charged for the procurement of replacement materiel. An amount of $145,631 collectec
by the Prairie Farm Rehabilitation Administration and held in this account at the year-
end was subsequently paid over to certain municipalities in May 1964 (see paragraph 121
of this Report).
AUDITOR GENERAL'S REPORT 65
114. Unmatured debt. A summary of the unmatured debt outstanding at March 31,
1964 in comparison with balances outstanding at the close of the two previous years,
is as follows:
March 31, 1962 March 31, 1963 March 31, 1964
Bonds
Payable in Canada $14,930,571,000 $15,385,847,000 $16,133,692,000
Payable in London 31,990,000 34,584,000 —
Payable in New York 98,175,000 376,405,000 376,405,000
15,060,736,000 15,796,836,000 16,510,097,000
Treasury bills (not exceeding 180 days) . . 1,885,000,000 2,165,000,000 2,230,000,000
$ 16,945,736,000 $ 17,961,836,000 $ 18,740,097,000
The increase of $748 million in the bond debt payable in Canada is the amount by
which new borrowings of $3,257 million during the year exceeded redemptions of $2,509
million of prior issues. Canada savings bonds accounted for $1,201 million of the new
borrowings and $690 million of the redemptions.
The entire bond debt payable in London reached maturity during the year and
was paid.
Issues payable in New York were valued at the official parity rate of $1U.S.=
$1.08108 Canadian.
It has always been the practice to include treasury bills and bonds maturing within
the ensuing fiscal year in the amount shown for "unmatured debt" along with issues
maturing at later dates. In addition to treasury bills of $2,230,000,000 shown in the above
summary as maturing within 180 days, the following issues, all payable in Canada, fall
due within the current fiscal year :
Loan of 1961 due May 1, 1964 $ 360,000,000
Loan of 1961 due December 1, 1964 240,000,000
Loan of 1961 due October 1, 1964 250,000,000
Loan of 1962 due February 1, 1965 350,000,000
Loan of 1963 due July 1, 1964 175,000,000
Loan of 1963 due October 1, 1964 185,000,000
Loan of 1963 due December 15, 1964 225,000,000
Loan of 1964 due February 1, 1965 65,000,000
$ 1,850,000,000
66 AUDITOR GENERAL'S REPORT
Net Debt
115. With the Liabilities amounting to $25,923,732,000 (paragraph 107) and the
Assets to $10,853,583,000 (paragraph 96), the Net Debt at March 31, 1964 was
$15,070,149,000. The following is an analysis of the Net Debt Account for the year under
review :
Balance, April 1, 1963 $ 13,919,770,000
Add— Deficit for the fiscal year 1963-64:
Expenditure $ 6,872,401,000
Revenue 6,253,204,000
619,197,000
Write-off of the unamortized portion of the actuarial
deficiency in:
Canadian Forces Superannuation Account 524,849,000
Royal Canadian Mounted Police Superannuation
Account 6,333,000
531,182,000
Balance, March 31, 1964 $ 15,070,149,000
Contingent Liabilities
116. A note on the Liabilities side of the Statement of Assets and Liabilities gives
the totals of the several classes of contingent liabilities outstanding at the year-end and
makes reference to the appendix to the Public Accounts (Volume I, page 7-73) where
details are to be found.
The following is a summary of the main contingent liabilities with determinate
amounts which were outstanding at March 31, 1964 in comparison with the corresponding
amounts at the close of the two previous years :
March 31, 1962 March 31, 1963 March 31, 1964
Insured loans made by approved lenders
under the National Housing Act, 1954 ..$ 3,640,000,000 $ 4,123,000,000 $ 4,499,000,000
Railway securities guaranteed as to principal
and interest 1,636,100,000 1,381,361,000 1,377,611,000
Deposits maintained by chartered banks in
Bank of Canada 696,008,000 741,870,000 840,037,000
Guarantees under Export Credits Insurance
Act, Part I 291,700,000 333,646,000 378,096,000
Loans made by chartered banks to Cana-
dian Wheat Board 113,555,000 80,331,000 151,313,000
Other contingent liabilities of determinate
amounts 66,299,000 73,998,000 82,217,000
$ 6,443,662,000 $ 6,734,206,000 $ 7,328,274,000
AUDITOR GE1SERAUS REPORT 67
Among the contingent liabilities of indeterminate amount is that in respect of loans
made by approved lending institutions under National Housing Acts prior to the 1954
Act.
Comments on Assets and Liabilities
117. Section 64 of the Financial Administration Act requires that there be included
in the Public Accounts "a statement, certified by the Auditor General, of such of the assets
and liabilities of Canada as in the opinion of the Minister [of Finance] are required to
show the financial position of Canada as at the termination of the fiscal year".
118. The Statement of Assets and Liabilities as at March 31, 1964 was prepared
by the Department of Finance on the same basis as in previous years, the following
explanation concerning this basis being included in the introduction to the Public
Accounts:
"With certain exceptions, taxes and revenues receivable, revenue and other asset
accruals and inventories of materials, supplies and equipment are not recorded as assets
(except when these are held as charges against working capital accounts or revolving funds)
nor are public works and buildings or other fixed or capital assets. Following the principle
that only realizable or interest- or revenue-producing assets should be offset against the gross
liabilities, costs of capital works are charged to expenditures at the time of acquisition or
construction. Consequently, government buildings, public works, national monuments, military
assets (such as aircraft, naval vessels, and army equipment) and other capital works and
equipment are recorded on the statement of assets and liabilities at a nominal value of $1 as
the value is not considered as a proper offset to the gross liabilities in determining the net
debt of Canada.
"On the liabilities side, accrued liabilities (except for interest accrued on the public
debt) are not taken into account in determining the obligations of the government. However,
under section 35 of the Financial Administration Act, liabilities under contracts and other
accounts payable at March 31 if paid on or before April 30 may be charged to the accounts
for the year. These are recorded as accounts payable in the 'Current and demand liabilities'
schedule to the statement of assets and liabilities."
119. Accounts receivable. Taxes and sundry accounts receivable are not recorded as
assets in the Statement of Assets and Liabilities.
Information regarding the total accounts receivable of each department at the
year-end, in comparison with the corresponding total at the close of the preceding year
(other than with respect to balances receivable by the Taxation Division of the Depart-
ment of National Revenue) is given in the several departmental sections of Volume II
of the Public Accounts. There is, however, no one place in the Public Accounts where
information regarding the departmental totals and the substantial overall total of
accounts receivable is available.
95480—6
68
AUDITOR GENERAL'S REPORT
The Public Accounts Committee in its Sixth Report 1964 (see Appendix 1, item 37)
expressed agreement with the Auditor General's observation that it would be more
informative to Parliament were a summary showing the overall total of accounts receiv-
able due to the Government of Canada, whether in memorandum form or recorded on
the books, included in the Public Accounts each year. The Comptroller of the Treasury
has since advised that arrangements are under way for the inclusion of such a summary
in the Public Accounts commencing with the fiscal year 1964-65.
The following summary of accounts receivable includes the totals given in the depart-
mental sections of the Public Accounts at March 31, 1964 together with the totals of
balances receivable as at February 29, 1964 by the Taxation Division, as provided to us
by that Division :
Department Current year
Agriculture $ 590,965
Citizenship and Immigration . . 132,866
Defence Production 872
Finance 24,633
Justice 231,345
National Defence 4,337,851
National Health and Welfare ... 1,050,126
National Revenue —
Customs and Excise Division . . 9,619,885*
Taxation Division 189,721,781*
Northern Affairs and National
Resources 279,782
Public Works 915,483
Royal Canadian Mounted Police 372,392
Trade and Commerce 132,524
Transport 2,081,878
Unemployment Insurance —
Commission 8,906
Fund 4,728,082*
Veterans Affairs 3,605,860
Other departments 302,375
$ 218,137,606
Previous Years
Collectable
Uncollectable
Total
$ 754,708
$
15,697
$ 1,361,370
356,298
212,006
701,170
1,768
259,329
261,969
65,997
615
91,245
—
224
231,569
1,692,217
183,100
6,213,168
280,713
138,810
1,469,649
791,330*
10,411,215
25,333,462*
215,055,243
370,112
20,066
669,960
647,264
14,439
1,577,186
10,349
9,729
392,470
15,702
11,550
159,776
784,114
32,643
2,898,635
338
442
9,686
4,728,082
1,988,791
486,104
6,080,755
65,259
25,552
393,186
$ 7,033,630
$
27,535,098
$ 252,706,334
* These amounts relate to both the current and previous years.
The accounts receivable totals shown in the above table were the amounts remaining
after certain uncollectable debts
(a) of $1,000 or less had been deleted from the accounts during the year under the authority
of section 23 of the Financial Administration Act, and
(6) in excess of $1,000 had been written off under authority of Department of Finance
Votes 56a and 56e of Appropriation Acts No. 5, 1963 and No. 3, 1964 for the year 1963-64.
AUDITOR GETSERAUS REPORT
A listing by departments of these deletions is as follows:
69
Department Items
Agriculture 299
Citizenship and Immigration 160
External Affairs 40
Finance 192
Fisheries 2
Justice 6
Mines and Technical Surveys 31
National Defence 586
National Health and Welfare 4,140
National Revenue — Customs and Excise . . 812
Public Works 685
Royal Canadian Mounted Police 15
Transport 80
Unemployment Insurance Commission . . 17
Veterans Affairs 2,113
Other departments Ill
Deleted under authority of
9,289
Financial
Finance
Administration
Votes
Total
Act. sec. 23
56a and 56e
deleted
$ 31,441
—
$ 31,441
5,489
$ 5,921
11,410
11,837
14,531
26,368
6,850
2,944
9,794
40
1,548
1,588
36
18,581
18,617
808
1,217
2,025
91,509
145,102
236,611
80,229
—
80,229
5,295
1,850,947
1,856,242
7,741
133,397
141,138
363
17,049
17,412
7,967
24,707
32,674
332
5,070
5,402
289,792
393,840
683,632
4,124
—
4,124
$ 543,853
$ 2,614,854
$ 3,158,707
We have drawn attention in the past several years to the fact that whether accounts
receivable are kept in memorandum form or recorded as an asset in the Statement of
Assets and Liabilities, they are nonetheless debts due to the Crown, and their accurate
recording and ultimate collection are primarily responsibilities of the departments con-
cerned. While we have again found that most of the departments having extensive
accounts receivable keep their records accurately and efficiently, this does not apply in
the case of some departments where accounts receivable as such are not an important
factor. We believe this situation to be largely due to the failure of these departments to
maintain controlling accounts and to provide for an effective internal verification of the
accounts by officers other than those responsible for keeping the accounts. Such weak-
nesses in internal control should be remedied in order to reduce the possibility of accounts
being tampered with and collections misappropriated.
The Public Accounts Committee expressed concern over this situation and in its
Sixth Report 1964 (see Appendix 1, item 37) suggested that the Treasury Board have
the matter studied with a view to establishing procedures designed to ensure that amounts
due to the Crown are adequately recorded and that an accounts receivable control system
be instituted. The Committee also stated that collection procedures must be tightened up
and firmly enforced.
95480— 6|
70 AUDITOR GENERAL'S REPORT
120. Accounts receivable — Department of National Revenue. It will be noted from
the table in paragraph 119 that the accounts due to the Department of National Revenue
at the close of the year accounted for $225 million of the overall total of $253 million
owing to the Crown.
With the co-operation of the officials of the Customs and Excise Division and the
Taxation Division, the following analyses have been prepared showing the nature of
the unpaid accounts and, in the case of the Taxation Division, the numbers and amounts
of the accounts according to their age classifications.
We believe that analyses or details of this nature, amplifying at least the larger
groupings of debts due to the Crown, should be prepared by the departments responsible
and made available to Parliament each year through the medium of the Public Accounts
or in the departmental annual reports.
customs and excise division. — The accounts receivable of this Division at March 31,
1964 are summarized as follows:
Collectable —
Excise tax $ 9,266,407
Customs seizures 196,963
Duties and taxes on importations 133,592
Investigations 21,436
Salary overpayments 1,487
$ 9,619,885
Uncollectable —
Excise tax 591,403
Customs seizures 28,490
Duties and taxes on importations 165,342
Salary overpayments 2,456
Sundry 3,639
791,330
$10,411,215
The figures reported above do not include:
(a) sales tax assessments made by Excise Tax Auditors but not reviewed by the Director
of Excise Tax Audit prior to March 31, 1964;
(6) disputed sales tax assessments;
(c) additional customs duties and taxes owing by reason of amending customs entries which
have remained unpaid for less than six months;
(d) amounts determined by the Investigations Branch to be owing, other than currently
active accounts.
We have discussed the foregoing omissions with the officials of the Division and have
been informed that steps will be taken to ensure the prompt recording as accounts
receivable of all amounts due to the Crown.
AUDITOR GENERAL'S REPORT 71
taxation division. — At February 29, 1964 the following amounts were owing to the
Crown with respect to income tax, estate tax and succession duty administered by this
Division of the Department of National Revenue:
Classification No. of Accounts Amount Total
Individuals and corporations —
Under 60 days old 32,724 $ 17,470,122
Over 60 days old 46,263 152,566,619
Segregated as uncollectable 12,667 24,062,638
$ 194,099,379
Tax deductions and non-residents —
Under 60 days old 1,234 535,247
Over 60 days old 6,109 7,210,597
Segregated as uncollectable 1,780 1,251,977
■ ■ 8,997,821
Estate tax and succession duty —
Under 60 days old 375 3,469,659
Over 60 days old 297 8,467,282
Segregated as uncollectable 3 6,152 11,943,093
101,452 $ 215.040,293
More than half of the total of $215 million is made up of accounts which have not
been collected for the following reasons:
1. Under appeal $ 67,778,000
There are 844 accounts presently under appeal. When these actions
are completed it is estimated the greater portion will be collected.
Security is held with respect to 389 of these accounts.
2. Uncollectable 25,321,000
Uncollectable amounts in excess of $1,000 may be written off only
with the sanction of Parliament and no such approval has been
sought by the Division since 1961-62. Amounts of $1,000 or less may
be written off with executive approval and accounts totalling $813,224
were written off with this approval in 1962-63. No approval for deletion
of accounts was sought during 1963-64 but the Division has since
established a policy of systematic review and recommendation for
write-off.
3. Under 60 days old 21,475,000
Accounts that are under 60 days old at February 29, 1964 represent
recent assessments or re-assessments.
4. Duplicate assessments (estimated) 8,000,000
When deemed necessary, duplicate assessments are raised against
individuals or corporations with which the originally assessed taxpayer
may be associated or to which he might transfer assets.
5. Deferred tax 6,586,000
Deferred tax is collectable only on the death of a taxpayer, in
accordance with section 13 of the Income War Tax Act, 1943-44, c. 14.
This section gave the taxpayer the option of paying part of the 1942
tax in 1943 or thereafter at a discount or having his executors pay
it from his estate. $ 129,160,000
72 AUDITOR GENERAL'S REPORT
121. Agricultural Commodities Stabilization Account. The operations of the Agri-
cultural Stabilization Board during the year 1963-64 resulted in a loss of $134,287,000.
This loss was met to the extent of $122,235,000 by funds appropriated by Appropriation
Act No. 2, 1964, Department of Agriculture, Vote 172e, and to the extent of $9,497,000
by major services provided without charge by government departments (see paragraph
163). The balance of the loss amounting to $2,555,000 remains as a charge to the
Agricultural Commodities Stabilization Account and is included in the balance of
$63,954,000 at March 31, 1964. This amount appears as a current asset item (see para-
graph 97) although to the extent of $2,555,000 it represents a loss which must eventually
be written off to expenditure (see also paragraph 92).
122. Loans to the Town of Oromocto, N.B. In paragraph 62 there appears an
explanation of why the Town of Oromocto, N.B., came into being with details of the
financial assistance provided to it by the Government of Canada during the period from
its incorporation in 1956 to March 31, 1964.
The outstanding balance of $3,715,000 of capital assistance loans of $4,450,000 made
during the period 1957 to 1961 is included in the asset item "Other loans and investments"
in the Statement of Assets and Liabilities.
As mentioned in paragraph 62, the operating costs in the calendar year 1963
amounted to $2,030,000 while revenue totalled only $209,000. In view of the very small
amount of revenue accruing to the Town both currently and in the foreseeable future,
it seems unrealistic to continue to treat the loans to the Town as an asset item for
purposes of the Statement of Assets and Liabilities. The Public Accounts Committee after
considering this matter recommended in its Sixth Report 1964 (see Appendix 1, item 25)
that the Department of Finance give consideration to writing off these loans to expense.
123. Unamortized portion of actuarial deficiencies. In 1951-52, following an actuarial
valuation of the Public Service Superannuation Account as of December 1, 1951, that
Account was credited and a deferred charge account was debited with $312 million. In
the same year Parliament voted $98 million as a special government contribution towards
amortizing the deficiency, and this left a balance of $214 million in the deferred charge
account. In the years 1952-53 and 1956-57 further amounts of $25 million and $50 million
were appropriated by Parliament and written off the deferred charge account, reducing
it to $139 million as at March 31, 1957. In 1960-61, following an actuarial valuation
made as of December 31, 1957, the Superannuation Account was credited with
$137,661,000 and the deferred charge was increased to $276,661,000.
A deferred charge of $326,300,000 was recorded in 1958-59 when the balance in the
Canadian Forces Superannuation Account was increased to an amount equivalent to the
estimated actuarial liability as at March 31, 1958. In 1962-63, following an actuarial
valuation as of December 31, 1960, adjusted to March 31, 1963, an additional $198,549,000
was credited to the Superannuation Account and the deferred charge was increased to a
total of $524,849,000.
AUDITOR GENERAL'S REPORT 73
Similarly in 1961-62 the Royal Canadian Mounted Police Superannuation Account
was credited with $3,533,000 and the deferred charge account was debited. In 1963-64
the Superannuation Account was credited with $2,800,000 to cover an estimated deficiency
resulting from pay increases granted the R.C.M.P. in 1962-63 and the amount of the
deferred charge was increased to $6,333,000.
On March 6, 1964 the Minister of Finance informed the House of Commons of a
general policy for dealing with the deficiencies in the various superannuation accounts.
It was proposed to write off existing deficiencies direct to net debt and to amortize
subsequent deficiencies arising from salary increases over a five-year period commencing
in the year in which the increases are authorized. In accordance with this policy, and
pursuant to Department of Finance Vote 68e of the Final Supplementary Estimates for
1963-64, the recorded deficiencies at March 31, 1963 of $524,849,000 in the Canadian
Forces Superannuation Account and $6,333,000 in the Royal Canadian Mounted Police
Superannuation Account were written off to net debt (see paragraph 115).
When the quinquennial actuarial report on the Public Service Superannuation
Account as of December 31, 1962 was tabled by the Minister on November 12, 1964, he
stated that authority would be sought from Parliament later in the year to write off to
net debt the additional deficiency of $110,536,000 revealed by the report (as well as the
previously existing deficiency of $276,661,000). The report also revealed a further
deficiency of $22,000,000 arising from salary increases authorized in July 1963 with effect
from October 1, 1962 which is to be written off to expenditure over a period of five
years commencing in 1964-65 (see paragraph 50).
124. Cheque Adjustment Suspense. As cheques issued by government departments
are negotiated by the payees, they are redeemed by payments made to the banks presenting
them for settlement. The volume is substantial and today amounts to five million cheques
a month compared to one million twenty years ago.
Following the introduction of family allowance payments by card cheque in 1945,
increased difficulties were encountered in reconciling the paid cheques with the payments
made to the banks which were exceeding the total value of the cheques being removed
from the outstanding cheque lists. These difficulties arose mainly from the inability of an
inexperienced staff to cope with the mounting volume and the inadequacy of the
mechanical equipment in use at the time. The net differences were transferred to a
suspense account, the total of which reached $141,392 by March 31, 1964. This amount
represents differences prior to April 1, 1962 when the introduction of electronic processing
equipment brought the situation under control.
Failure to reconcile paid cheques accurately and at regular intervals constitutes a
serious weakness in any system of internal accounting control. If the differences arising
from such a reconciliation cannot be accurately identified and accounted for, the possi-
74 AUDITOR GENERAL'S REPORT
bility exists that some of the cheques may have been stolen and negotiated a second
time without detection. Instances of this came to light in 1960 and 1962 when prosecu-
tions disclosed cases of extensive thefts from the Cheque Adjustment Division of paid
cheques some of which were cashed a second time.
Since the introduction of an electronic processing system, it has been possible for the
Cheque Adjustment Division to reconcile all payments to the banks against issue lists and
outstanding cheques. In the meantime, the net differences totalling $141,392 arising
between 1942-43 and 1961-62 which had been transferred to the suspense account will
presumably have to be written off.
125. Public Service Superannuation Account. Reference was made in paragraph 124
of last year's Report to an amount of $276,661,000 in the "asset" account captioned
"Deferred charge — Unamortized portion of actuarial deficiency — Public Service Super-
annuation Account". As stated in paragraph 123 of this Report, this amount is to be
written off direct to net debt in the year 1964-65.
126. Canadian Forces Superannuation Account. In paragraph 125 of last year's
Report reference was made to an amount of $524,849,000 which was included in the
"asset" account captioned "Deferred charge — Unamortized portion of actuarial defi-
ciency — Canadian Forces Superannuation Account". As stated in paragraph 123 of this
Report, this amount was written off direct to net debt in the year under review.
127. Suspense Accounts: P.F.R.A. Community Pastures — payments to municipali-
ties. During 1963-64 a special levy of one cent per head per day was assessed on cattle
grazing in pastures operated by the Prairie Farm Rehabilitation Administration and the
sum of $145,631 which was collected is included in the Suspense Accounts as at March 31,
1964. The pastures are operated under agreements between the Government of Canada
and the Provinces of Manitoba and Saskatchewan. The levy was instituted with the
concurrence of the Provinces, subsequent to representations by municipalities seeking
compensation for loss of tax revenues because the pastures are operated by an agency of
the Crown and thus are exempt from municipal taxes. The amount collected was paid
over to the respective municipalities under date of May 26, 1964.
In the absence of any reference to this levy in the agreements with the Provinces
concerned, the authority to collect the levy and pay it to the municipalities is open to
question.
Amendments to the agreements with the Provinces whereby the Government of
Canada will now collect the levy and remit it immediately to the municipalities concerned
have since been signed.
AUDITOR GE1SERAVS REPORT 75
Crown Corporations
128. Section 85 of the Financial Administration Act requires that each Crown cor-
poration prepare, in respect of each financial year, a balance sheet, a statement of income
and expense and a statement of surplus "containing such information as, in the case of
a company incorporated under the Companies Act, is required to be laid before the
company by the directors at an annual meeting".
129. Section 87 of the Act requires the auditor of a Crown corporation to report
annually to the appropriate Minister the result of his examination of the accounts and
financial statements of the corporation, and the report is required to state whether, in
his opinion:
"(a) proper books of account have been kept by the corporation;
(6) the financial statements of the corporation
(i) were prepared on a basis consistent with that of the preceding year and are in
agreement with the books of account,
(ii) in the case of the balance sheet, give a true and fair view of the state of the
corporation's affairs as at the end of the financial year, and
(iii) in the case of the statement of income and expense, give a true and fair view of the
income and expense of the corporation for the financial year; and
(c) the transactions of the corporation that have come under his notice have been within
the powers of the corporation under this Act and any other Act applicable to the
corporation".
In addition, the auditor is required to call attention to any other matter falling within
the scope of his examination that in his opinion should be brought to the attention of
Parliament.
130. Section 87 of the Act further requires that the annual report of the auditor
be included in the annual report of each corporation, and section 85 directs that such
annual report be laid before Parliament by the appropriate Minister within fifteen days
after he receives it from the corporation or, if Parliament is not in session, within fifteen
days after the commencement of the next ensuing session.
The financial statements of the various corporations, together with the related audit
reports, are published in Volume III of the Public Accounts.
131. Crown corporations classed as "agency" or "proprietary" corporations are listed
in Schedules "C" and "D" to the Financial Administration Act. Those in the former
class are responsible, in general, for the management of procurement, construction, service
or disposal activities on behalf of the Crown. Those in the latter class are responsible for
the management of lending or financial operations, or for the management of commercial
and industrial operations involving the production of or dealing in goods and the supply-
ing of services to the public.
76 AUDITOR GEISERAUS REPORT
132. The Auditor General is the auditor of the following Crown corporations whose
accounts and financial statements were examined for their financial years terminating
during, or coinciding with, the fiscal year ended March 31, 1964:
Corporation Class Reporting Minister
Atomic Energy of Canada Limited Agency Chairman of the Commit-
tee of the Privy Council
on Scientific and Indus-
trial Research
Canadian Arsenals Limited Agency Industry
Canadian Broadcasting Corporation Proprietary Secretary of State
Canadian Commercial Corporation Agency Industry
Canadian Corporation for the 1967 World
Exhibition Trade and Commerce
Canadian National (West Indies) Steamships,
Limited Agency Transport
Canadian Overseas Telecommunication
Corporation Proprietary Transport
Canadian Patents and Development Limited . . . Agency Chairman of the Commit-
tee of the Privy Council
on Scientific and Indus-
trial Research
Centennial Commission Agency Secretary of State
Cornwall International Bridge Company Limited Proprietary Transport
Crown Assets Disposal Corporation Agency Industry
Defence Construction (1951) Limited Agency Industry
Eldorado Aviation Limited Proprietary Trade and Commerce
Eldorado Mining and Refining Limited Proprietary Trade and Commerce
Export Credits Insurance Corporation Proprietary Trade and Commerce
Farm Credit Corporation Proprietary Agriculture
The National Battlefields Commission Agency Northern Affairs and
National Resources
National Capital Commission Agency Public Works
National Harbours Board Agency Transport
Northern Canada Power Commission Agency Northern Affairs and
National Resources
Northern Ontario Pipe Line Crown Corporation . Trade and Commerce
Northern Transportation Company Limited Proprietary Trade and Commerce
Park Steamship Company Limited Agency Transport
Polymer Corporation Limited and subsidiary
companies Proprietary Industry
The St. Lawrence Seaway Authority Proprietary Transport
The Seaway International Bridge Corporation,
Ltd Proprietary Transport
AUDITOR GENERAL'S REPORT 77
133. Since the Auditor General has not been appointed the auditor of the following
Crown corporations and public instrumentalities their accounts were not examined by him
during the year under review :
Corporation or Instrumentality Class Reporting Minister
Bank of Canada Finance
Canadian National Railways Proprietary Transport
The Canadian National Railways Securities
Trust Proprietary Transport
The Canadian Wheat Board Trade and Commerce
Central Mortgage and Housing Corporation .... Proprietary Postmaster General
Industrial Development Bank Finance
Trans-Canada Air Lines Proprietary Transport
In its Eighth Report 1964 (see Appendix 1, item 49) the Public Accounts Committee
recommended that the Auditor General be appointed the auditor or the joint auditor of
these corporations or instrumentalities.
134. The paragraphs that follow treat, in turn, with the various corporations audited
by the Auditor General. In each case, an introductory comment describes briefly the
origin of the corporation and the nature of its activity, and this is followed by comments
regarding the Crown's equity in the corporation, a summary of the operations for the
financial year in comparison with the preceding year, and any other matter which it is
thought might be of interest to the House of Commons.
135. Atomic Energy of Canada Limited. This company was incorporated in 1952
under the Companies Act, 1934, pursuant to authority contained in the Atomic Energy
Control Act, R.S., all, to carry out research and development in nuclear power technology
and allied fields and to promote uses of atomic energy.
The head office of the company is in Ottawa. Nuclear reactors and major research
and development laboratories are maintained at Chalk River, Ontario. A commercial
products division, located in Ottawa, is responsible for the processing of radioisotopes
produced in the company's reactors, the designing of equipment for the use of radio-
active materials and the marketing of the products and equipment on a commercial basis.
Another division, situated in Toronto, is responsible for the engineering, development,
construction and management of nuclear power generating projects. The company, in
co-operation with the Hydro-Electric Power Commission of Ontario, is building Canada's
first full-scale nuclear power generating station at Douglas Point on Lake Huron.
A nuclear power demonstration plant at Rolphton, Ontario, came into operation
in 1962 and the steam produced is sold to the Hydro-Electric Power Commission of
Ontario to generate electric power. The plant was built as a joint project of Atomic
78 AUDITOR GENERAL'S REPORT
Energy of Canada Limited, the Hydro-Electric Power Commission of Ontario and
Canadian General Electric Company Limited to demonstrate the Canadian type of
nuclear power reactor.
The Whiteshell nuclear research establishment, including housing accommodation
and a shopping centre, has been under construction for the past three years at a site
65 miles north-east of Winnipeg, Manitoba, for the purpose of complementing the
research and development facilities at Chalk River.
The company's accumulated costs of research facilities at Chalk River, Whiteshell
and Rolphton, charged to research expense and financed by funds provided under parlia-
mentary appropriations, amounted to $161,359,000. The cost of the Douglas Point
generating station amounting to $33,590,000 at the year-end is being financed by Govern-
ment of Canada loans.
The Crown's equity in the company at March 31, 1964 totalled $57,333,000, com-
prising: loans for housing, $7,829,000; loans for construction of Douglas Point generating
station, $32,316,000; capital stock, $15,000,000; and retained earnings, $2,188,000.
A by-law of the company, which authorized a reduction of $39,000,000 in its paid-up
capital, was confirmed by Supplementary Letters Patent under date of June 17, 1963.
The reduction was effected by a payment of $13,761,000 to the Receiver General and the
write-off in the previous year of the undepreciated cost of $25,239,000 of the NRU reactor
(Special Appropriation Act, 1963, Atomic Energy Vote 16).
A comparative summary of income and expense for the past two years follows:
Year ended March 31
1964 1963
Research Program — Operating
Expense —
Science $ 6,676,000 $ 6,146,000
Engineering 7,954,000 8,273,000
Power projects design and development 4,663,000 5,092,000
Operation of research facilities 3,661,000 1,795,000
Maintenance and other services 3,757,000 3,772,000
Whiteshell nuclear research establishment 1,822,000 502,000
Administration 3,392,000 3,159,000
Other 1,776,000 1,788,000
33,701,000 30,527,000
Income: Gross income from housing, hospitals, transportation, sale
of steam, etc 2,243,000 1,896,000
Excess of expense over income $31,458,000 $28,631,000
Provided for by:
Parliamentary appropriation $31,469,000 $28,646,000
Less: Unexpended balance refundable to the Government of
Canada 11,000 15,000
$31,458,000 $28,631,000
AUDITOR GEISERAUS REPORT 79
Year ended March 31
1964 1963
Research Program — Capital
Expense: Construction of buildings and acquisition of equipment ..$14,219,000 $ 9,349,000
Provided for by:
Parliamentary appropriation $13,466,000 $ 8,431,000
Retained earnings 753,000 918,000
$14,219,000 $ 9,349,000
Commercial Operations
Income —
Sales $ 4,334,000 $ 3,803,000
Rentals, etc 69,000 159,000
4,403,000 3,962,000
Expense —
Cost of sales, etc 2,138,000 1,858,000
Research and development 612,000 652,000
Selling 1,125,000 863,000
Administrative 414,000 373,000
4,289,000 3,746,000
Excess of income over expense, credited to retained earnings $ 114,000 $ 216,000
The increase of $3,174,000 during 1963-64 in research operating expenses was largely
due to increases in: salaries and wages including welfare benefits, $929,000; grants in lieu
of taxes, $145,000; and costs of expendable equipment, $236,000; together with non-
recoverable costs of the NRU reactor, $1,830,000. The Whiteshell nuclear research estab-
lishment commenced operations in July 1963 and 132 employees were added to this
establishment. This, together with increases in pay granted under union contracts,
accounted for the increases in salaries and wages. The increase in the grants in lieu of taxes
related to the new town of Pinawa, Man., which is part of the Whiteshell establishment.
For several years the sale of material irradiated in the NRU reactor and the related costs
have been subject to a classified international agreement. The terms of this agreement
were such that all costs of operating the reactor were recoverable. However, under the
terms of an extension to this agreement these costs will no longer be recovered. The
excess of the operating costs of the reactor over the revenue was absorbed as an expense
of the year.
136. Canadian Arsenals Limited. This company was incorporated in 1945 under
the Companies Act, 1934, pursuant to authority contained in the Department of Recon-
struction Act, 1944, c.18. The main objects of the company are the operation, maintenance
and supervision of arsenals and other plants for the production of military stores and
HO AUDITOR GENERAL'S REPORT
equipment, including the maintenance of physical facilities and manufacturing skills so
that the operations could be expanded on short notice.
At the year-end the company, with its head office in Ottawa, was the custodian of
and operated eight Crown-owned plants, the total cost of which was $95,217,000 compared
with $99,611,000 at March 31, 1963. The decrease of $4,394,000 largely represented the
cost of assets the custody of which was returned to the Department of Defence Produc-
tion, including land, buildings and equipment of the gun ammunition plant at Lindsay,
Ont., which had cost $3,225,000 and equipment of the instrument and electronics plant
at Scarborough, Ont., which had cost $700,000. Capital outlays of $268,000 during 1963-64
were provided for by a parliamentary appropriation (Department of Defence Production
Vote 40) for construction, improvements and equipment.
At March 31, 1964 the company's operations were financed by advances of $367,000
from the Department of National Defence in respect of orders placed, advances of
$1,250,000 from the Defence Production Revolving Fund and an advance of $7,500,000
from the Minister of Finance for working capital.
The following is a comparative summary of the results of operations for the last
two years:
Year ended March 31
1964 1963
Income —
Sales $10,051,000 $16,975,000
Miscellaneous 651,000 815,000
10,702,000 17,790,000
Expense —
Cost of sales, including indirect labour and other overhead expenses
absorbed 9,102,000 15,310,000
Indirect labour and other overhead expenses not absorbed in cost
of sales 4,763,000 5,814,000
Administrative expenses 733,000 818,000
Plant shut-down costs 362,000 49,000
14,960,000 21,991,000
Excess of expense over income $ 4,258,000 $ 4,201,000
The company's sales reached a peak in 1954-55 when Korean war contracts were
still being completed and, except for a minor increase in 1961-62, there has since been
a steady decline in sales, from $80 million for the year ended March 31, 1955 to $10
million for the year ended March 31, 1964. The reduced level of sales, coupled with the
company's obligation to maintain the Crown-owned plants in partial stand-by condition,
has necessitated funds being appropriated by Parliament towards the cost of operation
and administration of the company. During the year under review $4,258,000 was pro-
vided by Department of Defence Production appropriations for this purpose.
AUDITOR GENERAL'S REPORT 81
Indirect labour and overhead expenses for the year totalled $8,688,000, compared
with $10,804,000 for the previous year, of which $3,925,000 was included in cost of sales.
It has been the company's practice to calculate this portion of overhead expenses on
direct labour costs at rates which theoretically would have absorbed all overhead expenses
if all plants had been operating on a normal one-shift basis. The extent to which these
rates were not sufficient to recover overhead costs, $4,763,000, shown in the above table
as indirect labour and other overhead expenses not absorbed in cost of sales, can be
largely attributed to idle capacity of production facilities.
Plant shut-down costs of $362,000 relate to expenditures incurred in the transfer and
disposal of machinery and equipment and other costs of closing the gun ammunition
plant, which was sold by Crown Assets Disposal Corporation during the year, and similar
expenses incurred in preparation for the closing of the instrument and electronics plant.
The company has a fund of $401,000 on deposit with an insurance company in
respect of a group plan which provides life, medical, surgical and other insurance benefits
to employees and their dependents. Employees' premiums and the company's matching
contribution, which amounted to $137,000 in 1963-64, are paid into the fund. The balance
on deposit, which is available for possible catastrophe, excessive claims or additional
benefits without increase in premiums, represents the excess of premiums remaining after
charges for the total of claims incurred, additional benefits and administrative fees
charged by the insurance company. Interest is credited to the account by the insurance
company at the rate of approximately 5% per annum and amounted to $20,000 during
the year under review.
Inventories of raw materials, work in process and finished goods were reduced by
$1,077,000 or 23.5% from their level at March 31, 1963. The inventory reduction included
write-offs of $97,000, largely due to the closing of the gun ammunition plant.
In the Reports for the last two years, references were made to the report of a firm
of management consultants engaged in 1960 by the Department of Defence Production
to study the organization of the company, the efficiency and cost of its manufacturing
operations and other aspects of its activities. Of eleven major recommendations made by
the consultants six had been or were in the process of being implemented. We were
informed that the implementation of the remaining recommendations was dependent on
the decision as to the consolidation of facilities or sale of the various operating units of
the company to private enterprise.
137. Canadian Broadcasting Corporation. This Corporation, established by the Cana-
dian Broadcasting Corporation Act, 1936, c.24, superseded by the Broadcasting Act,
1958, c.22, operates the national television and radio broadcasting services and also
administers an international shortwave service on behalf of the Government of Canada.
The head office of the Corporation is in Ottawa, with regional offices in St. John's,
Halifax, Montreal, Ottawa, Toronto, Winnipeg and Vancouver and an engineering head-
quarters in Montreal.
The Corporation derived its funds for operating requirements in excess of advertising
revenue and also funds for its capital requirements from grants provided through
parliamentary appropriations.
82 AUDITOR GENERAL'S REPORT
At March 31, 1964, the Crown's equity in the Corporation amounted to $45,612,000
represented by capital assets, at cost less accumulated depreciation, of $36,612,000 and
working capital of $9,000,000.
The following is a comparative summary of the results of operations for the last two
financial years:
Year ended March 31
1964 1963
Expense —
Cost of production and distribution
Cost of programs $74,388,000 $69,912,000
Network distribution 10,323,000 10,146,000
Station transmission 4,407,000 4,030,000
Payments to private stations 4,927,000 4,335,000
Commissions to agencies and networks 3,805,000 3,872,000
97,850,000 92,295,000
Operational supervision and services 8,920,000 8,427,000
Selling and general administration 8,064,000 7,362,000
Emergency broadcasting 624,000 282,000
Total expense including depreciation 115,458,000 108,366,000
Income —
Advertising revenue, etc 33,010,000 31,403,000
Net expense $82,448,000 $76,963,000
The parliamentary grant "in respect of the net operating amount required to dis-
charge the responsibilities of the national broadcasting service" for the year of $78,377,000,
comprising net expense of $82,448,000 shown above, less depreciation of $4,071,000
charged for cost ascertainment purposes, was provided by the Government of Canada
under authority of Canadian Broadcasting Corporation Vote 1, Appropriation Act No. 5,
1963.
The net operating amount required by the Corporation rose by $5,722,000 from
$72,655,000 for the year ended March 31, 1963 to $78,377,000 for the year ended March 31,
1964, an increase of 7.9%, compared with $2,402,000, or 3.4% in the previous year. The
increase in expense experienced in practically all departments was attributable to many
factors. Salaries and wages increased by $2,793,000 mainly due to the implementation
of wage increment provisions of collective bargaining agreements. Performers' fees,
authors', composers' and other rights rose by $1,783,000 as a result of additional
programming and a 17% increase in fees to performers on the French network.
Other increases were attributed to extended television network broadcasting hours, the
addition of five rebroadcasting stations, increase in costs of the rental of film rights and
in payments to affiliated private stations in respect of network programs and station
time rates. The improvement in income was almost entirely due to television advertising.
During the year under review the Corporation discovered a defalcation of $40,648
perpetrated by means of falsification of payments for professional services. Of this
AUDITOR GENERAL'S REPORT 83
amount, $37,067 was recovered from the bonding company and $3,581 from amounts
due to the absconding employee. Improvements in the system of internal financial
control designed to avoid recurrence of this type of defalcation have since been
introduced.
The statement of operations segregates cost of production and distribution under
the headings of "Programs without Advertising, $64,633,000" and "Programs with Adver-
tising, $33,216,000". The former classification comprises two types of programs, those
which are available for advertising but which have not attracted advertising revenue,
and programs of a public service nature which, because of Corporation policy, are not
available to advertisers. A segregation of the total cost of "Programs without Advertising"
under these headings follows:
Programs News and
Available Public
for Service
Advertising Programs Total
Cost of programs $24,653,000 $29,137,000 $53,790,000
Network distribution 3,507,000 4,150,000 7,657,000
Station transmission 1,459,000 1,727,000 3,186,000
$29,619,000 $35,014,000 $64,633,000
The total cost of production and distribution of programs with advertising potential
was therefore $62,835,000 comprised of the $29,619,000 shown above and $33,216,000, the
cost of production and distribution of programs with advertising. As gross advertising
revenue only amounted to $32,392,000, the difference of $30,443,000, together with the
costs of operational supervision and services and of selling and general administration,
was required to be met from the parliamentary grant.
The Public Accounts Committee, in its examination into the accounts of the Corpora-
tion for the years ended March 31, 1962 and 1963, expressed the opinion that the
Corporation's statement of operations would be materially improved by a redefinition
of the existing categories, or by the addition of further categories, so as to show separately
the cost of programs without advertising but which were available for sale and by
showing separately on the statement the gross profit or loss derived from the sale of
advertising from all sources during each fiscal year. Accordingly, in its Fifth Report
1964, the Committee recommended that:
"the President and the Board of Directors realign the format of the annual statement of
operations of the Corporation in a manner designed to show separately in future for each
fiscal year (1) the cost of programs produced without advertising but which were available
for sale, and (2) the gross profit or loss derived from the sale of advertising from all sources".
and reported that the President had informed the Committee that such a realignment
of the statement of operations could be made. The Committee expressed the hope that
this could be made effective on a comparative basis commencing with the 1964-65 fiscal
year (see Appendix 1, item 18).
84 AUDITOR GEISERAUS REPORT
The following inventory balances at March 31, 1964 are compared with the cor-
responding balances at March 31, 1963:
March 31
1964 1963
Programs completed and in process of production $ 4,792,000 $ 3,589,000
Film and script rights 1,771,000 1,877,000
Engineering and production supplies 1,652,000 1,646,000
$ 8,215,000 $ 7,112,000
As in previous years, the bulk of the program inventory continued to be represented
by programs recorded in advance of broadcast on videotape and on film for the English
and French networks. An expansion of the supply sources during the year made it
possible for the Corporation to reduce the amount invested in prepaid film rights in the
Quebec region to $972,000 or 61% of the total amount so invested at March 31, 1964
compared with $1,363,000 or 80% of the total so invested at the close of the preceding
year.
The inventory balances shown in the above tabulation are after giving effect to the
following write-offs:
Programs completed and in process of production abandoned and cancelled because of
technical deficiencies, scheduling difficulties, pre-emptions, etc $ 129,000
Film rights expired — films not telecast because of unsuitability of program content,
technical deficiencies, pre-emptions, etc 56,000
Script rights expired or unsuitable 44,000
Engineering and production supplies unusable and obsolete 3,000
$ 232,000
The comparable write-offs in the previous year totalled $255,000.
The capital requirements of the Corporation, amounting to $7,383,000, were provided
to the extent of $7,333,000 by parliamentary appropriation and to the extent of $50,000
from proceeds of sale of assets.
Certain preliminary expenses due to changes in design and other costs incurred by
reason of a government-directed slow-down during construction of the head office build-
ing, estimated as having cost $97,850, were written off by a charge to Proprietor's Equity
Account during the year.
During the last five years, $5,771,000 was spent in connection with the planned
consolidation of facilities in Toronto, Montreal and Ottawa. A note to the financial state-
ments at March 31, 1964 sets out that the present estimate of the future cost of con-
solidation of facilities for the Corporation is $128,080,000, of which, subject to the
provision of funds by Parliament for the purpose, approximately $3,442,000 will be
expended during the year ending March 31, 1965 and $124,638,000 during subsequent
years.
AUDITOR GENERAL'S REPORT 85
In our reports to management for the last two years we have referred to the need
for a physical inventory of all capital assets of the Corporation with a view to establishing
and maintaining improved physical and accounting control over these assets. A physical
count of all capital assets was made during the 1962-63 fiscal year but it was subsequently
found necessary to have an inventory recorded in greater detail and to show the exact
location of each component in order to maintain proper control over the assets. This
undertaking was in process at the year-end and the reconciliation of the assets with the
accounting records remained to be completed. The Corporation does not anticipate that
the assignment will be completed before March 31, 1966.
In our previous Reports we have referred to the recommendation contained in our
report to the Board of Directors for the year ended March 31, 1960 that a useful purpose
might be served by having the Corporation's organizational structure in terms of its
present size, complexity and cost made the subject of a study by independent manage-
ment consultants working in co-operation with the Audit Office. A study along these
lines was made by the Royal Commission on Government Organization and the results
were contained in Report 19, Volume 4 of its Reports released on April 17, 1963. Although
the Commission had not undertaken a detailed investigation and appraisal, its Report
proposed guidelines and criteria which, subject to government decisions on policy, should
permit the Corporation to adjust its internal organization and operations to management
and performance needs.
The Public Accounts Committee also questioned the officers of the Corporation on
the extent to which the recommendations of the Auditor General and the Royal Com-
mission on Government Organization had been implemented. As indicated in Appendix 1,
items 20 and 21, recommendations and observations made in the Committee's Fifth
Report 1964 to the House of Commons included the following:
"Authority of Comptroller over Regional Accountants
The Committee was disturbed to learn that the authority of the Comptroller over the
accounting staffs at the regional centres of the Corporation across Canada is not clearly
denned and expresses agreement with the view of the Auditor General that the regional
accountants should be responsible directly to the Comptroller at head office in the interests
of effective internal financial control. The Committee is of the opinion that a clear definition
of this responsibility is overdue and was pleased to be advised by the President that it will
receive early attention.
The Auditor General is requested to advise the Committee when this matter has been
settled to his satisfaction."
"Report of the Royal Commission on Government Organization
The Committee noted that the Auditor General raised questions concerning contents of
Report No. 19, Volume 4 of the report of the Royal Commission on Government Organization,
which was made public on April 17, 1963. In answering members of the Committee on these
points, the President stated that he did not agree with all the recommendations of the
Royal Commission and explained that the Royal Commission had apparently failed to
understand the nature of the problem.
86 AUDITOR GENERAL'S REPORT
The Committee recommends that the Secretary of State table an official memorandum in
the House presenting the Corporation's views and its replies to each of the matters dealt
with by the Royal Commission in its Report No. 19, and that this be done before the
estimates of the Corporation are considered by the House."
138. Canadian Commercial Corporation. This Corporation which was established in
1946 by the Canadian Commercial Corporation Act, now R.S., c.35, provides procurement
services in Canada for the governments of other countries and for international organiza-
tions. The Corporation's main customer is the United States Government. During the
year under review $218 million was expended by the Corporation on behalf of its
customers as compared with $153 million in the previous year.
The equity of the Government of Canada in the Corporation amounted to $5,596,000
as at March 31, 1964 consisting of $5,500,000 working capital advances and an accumu-
lated surplus of $96,000.
The following is a comparative summary of the operations of the Corporation for
the past two years :
Year ended March 31
1964 1963
Expense —
Salaries and living expenses $ 440,000 $ 381,000
Other expense 141,000 110,000
581,000 491,000
Income —
Purchase surcharges 145,000 127,000
Interest earned 133,000 119,000
Other income — 9,000
278,000 255,000
Net loss $ 303,000 $ 236,000
In my Report for 1962 and again in my 1963 Report it was noted that the Depart-
ment of Defence Production had been providing purchasing and accounting services free
of charge to the Corporation. Also, reference was made to a Board of Directors' minute
wherein it was noted that future operating deficits should be covered by a Department
of Defence Production appropriation. These matters have been resolved by the imple-
mentation during the fiscal year of the recommendation of the Royal Commission on
Government Organization to the effect that the legal entity of the Corporation should
be retained but that its management and staff should be provided by the Department
of Defence Production.
AUDITOR GENERAL'S REPORT 87
139. Canadian Corporation for the 1967 World Exhibition. This Corporation was
established under the Canadian World Exhibition Corporation Act, 1962-63, c.12. The
name of the Corporation was changed in 1963 under the Canadian Corporation for the
1967 World Exhibition Act, 1963, c.32. The Corporation was established for the purposes
of planning, organizing, holding and administering the International and Universal
Exhibition to be held in Montreal in 1967 in connection with the celebration of the
Centennial of Confederation in Canada. An Act respecting the Canadian World Exhibi-
tion was passed by the Province of Quebec Legislative Assembly on April 2, 1963,
providing authority for the sharing in the financing of the Corporation by the Province of
Quebec and the City of Montreal.
The Corporation consists of a Commissioner General, a Deputy Commissioner Gen-
eral and 14 other directors appointed by the Governor in Council, seven of whom are
appointed on the recommendation of the Lieutenant-Governor in Council.
Section 17 of the Act requires that the accounts and financial transactions of the
Corporation shall be audited by the Auditor General of Canada and the Quebec Pro-
vincial Auditor, and the auditors are required to report annually in a manner similar to
that required by the Financial Administration Act in respect of other Crown corporations.
An agreement was concluded on January 18, 1963 between Canada, the Province of
Quebec and the City of Montreal, confirming their acceptance of the legislation establish-
ing and governing the Corporation, and outlining certain "settlements" between the
Corporation and the three governments to be concluded after the closing of the Exhibition.
As the latter would appear to be couched in general terms, it has been suggested to the
management that, in order to avoid complications in the ultimate interpretation of the
relevant clauses, the Corporation's legal officers should discuss these matters with the
federal and provincial government departments concerned with a view to having the
exact intent of the agreement more precisely stated.
Under section 10 of the federal Act, the Corporation was required not later than
one year after the coming into force of the Act to "submit for the approval of the
Governor in Council and the Lieutenant-Governor in Council, its overall plan for the
Exhibition, setting forth the various undertakings and projects proposed by the Corpora-
tion in connection with the planning, organizing, holding and administering of the
Exhibition, the estimated cost of each such undertaking or project and an estimate of
the total capital costs and operating costs of the Corporation in respect of the Exhibition".
Any material changes in the plan, including estimates of costs, are to be submitted
to the Governor in Council and the Lieutenant-Governor in Council for approval, and
the Corporation may not initiate any undertaking or project, expend any money thereon
or incur any liability therefor unless that undertaking or project is included in the
approved overall plan or modification thereof.
The overall plan was submitted on December 20, 1963 and was approved by the
Governor in Council on February 13, 1964 (Order in Council P.C. 1964-252) and
88 AUDITOR GENERAL'S REPORT
by the Lieutenant-Governor in Council on February 12, 1964 (Order in Council No. 299).
The cost summary included in the plan shows an estimated net cost to the Corporation
of $47,534,000, made up as follows :
Construction costs $ 110,931,000
Operating and administration costs 56,216,000
167,147,000
Deduct :
Revenues $ 75,870,000
Salvage 7,269,000
Permanent assets 36,474,000
119,613,000
Net cost $ 47,534,000
Under the terms of the above-mentioned agreement between the three governments,
the above net cost is to be borne by Canada, the Province of Quebec and the City of
Montreal in the proportions of 50%, 37^% and 12^%, respectively.
Under the authority of the federal and provincial legislation the activities of the
Corporation are financed by funds provided by Canada, the Province of Quebec and the
City of Montreal, and the aggregate of the grants made by the three governments must
not exceed $20 million, $15 million, and $5 million, respectively.
In order to obtain additional funds required for its purposes, section 12 of the
federal Act provides that the Corporation may, with the approval of the Minister of
Finance and the Minister of Finance of Quebec, borrow money, on the security of notes,
bonds or debentures of the Corporation. Such notes, bonds or debentures are to be issued
at such rates of interest and subject to such other terms and conditions as may be
approved by the Governor in Council and the Lieutenant-Governor in Council, and are
to be jointly guaranteed by Canada and Quebec. In addition, subsection (5) of section 12
provides that the Corporation may borrow money from the Minister of Finance for
temporary purposes and the Minister of Finance, with the approval of the Governor
in Council and subject to such terms and conditions as the Governor in Council may
prescribe, may lend money to the Corporation for such purposes out of the Consolidated
Revenue Fund, but the aggregate of all amounts loaned to the Corporation under this
subsection and outstanding at any time shall not exceed $1 million.
In view of the fact that the Corporation does not expect to earn any appreciable
income until the year 1967 when the Exhibition takes place, a statement of operations
was prepared for the period December 20, 1962 (date of inception of the Corporation)
to December 31, 1963 showing detailed operating expenditures made from the grants
received during the period from the three governmental sources. Capital expenditures
represented by fixed assets and prepaid development costs are shown on the Corporation's
balance sheet, the total thereof representing the proprietorship equity of the three gov-
ernmental contributors at December 31, 1963.
AUDITOR GENERAL'S REPORT 89
Section 15 of the Canadian Corporation for the 1967 World Exhibition Act requires,
under subsection (1), that the Corporation submit an operating budget and a capital
budget annually to the Minister designated to act as the Minister for the Exhibition and
to the Minister of Industry and Commerce for the Government of the Province of
Quebec for their approval and for the approval of the Minister of Finance and the
Minister of Finance of Quebec, and the capital budget so approved shall be laid by the
first-mentioned Minister before Parliament.
Pursuant to this provision, an initial operating budget for 1963 totalling $1,338,034
was prepared and submitted to the appropriate Ministers in April 1963 and was approved
in September 1963. A revised operating budget in the amount of $1,295,000 for 1963 was
approved by the Minister for the Exhibition and the Minister of Finance on January 21,
1964, and later by the Minister of Industry and Commerce for the Government of the
Province of Quebec.
The accounts of the Corporation for the period disclosed that the total expenditures
exceeded this budget by $142,577 as follows:
Funds Expenditures
Advanced by Excess
for Budget Corporation Expenditures
Canada $ 647,500 $ 718,789 $ 71,289
Province of Quebec 485,625 539,091 53,466
City of Montreal 161,875 179,697 17,822
$ 1,295,000 $ 1,437,577 $ 142,577
The expenditures made in excess of the budget, shown above in the amount of
$142,577, were caused by the engagement of staff and the incurring of other operating
costs in excess of those authorized in the 1963 revised budget.
Section 8 of the Canadian Corporation for the 1967 World Exhibition Act provides
under subsection (2) that the Corporation shall submit a plan of organization to the
Governor in Council and the Lieutenant-Governor in Council for approval, showing the
number of officers and employees estimated to be required for the proper conduct of the
business of the Corporation, the proposed classes of positions and rates of compensation
for each class and that the Corporation shall not employ an officer or employee except in
accordance with the plan of organization so approved.
A plan of organization as required by the above-mentioned statute was prepared and
submitted to the appropriate Ministers in April 1963. This plan, which was approved by
the Governor in Council and the Lieutenant-Governor in Council, provided for a total
establishment for 1963 of 79 positions.
90 AUDITOR GENERAL'S REPORT
The examination of the records of the Corporation disclosed that the number of
personnel engaged during 1963 exceeded the above authorization by 57 persons. Further-
more, the salaries paid during the period were, in 80 instances, either in excess of the
salary ranges authorized for the same or comparable positions, or applied to positions not
provided for in the approved plan of organization.
On March 23, 1964 a new plan of organization was approved by the Governor in
Council under Order in Council P.C. 1964-433, which provided that the total number of
staff shall not exceed 400 during the year 1964. The salary scale approved for these posi-
tions in certain of the categories provides for higher salaries than the scale approved
for the year 1963. The new plan of organization was also approved by the Lieutenant-
Governor in Council on March 24, 1964 under Order in Council No. 580 which, in
addition, approved retroactively the size of the staff and the salaries paid during the
period ended December 31, 1963.
The following is a summary of the $1,438,000 expenditures of the Corporation during
the period to December 31, 1963:
Period from
December 20, 1962
to
December 31, 1963
Operating expenses —
Salaries and employee benefits $ 373,000
Travel and representation 96,000
Postage, telephone and telegraph 28,000
Advertising and publicity 87,000
Office rent 57,000
Office stationery and expenses 32,000
Administrative services including fees to management consultants 39,000
Recruitment and relocation of personnel 16,000
Theme and symbol development 24,000
Fees for special economic studies 65,000
Fees for minimum time and cost scheduling 42,000
Legal fees 13 ; 000
Miscellaneous 34,000
906,000
Bank interest earned 3,000
903,000
Capital and prepaid development costs —
Capital costs 246,000
Prepaid development costs 289 000
535,000
Total $ 1,438,000
AUDITOR GE7SERAUS REPORT 91
Since a portion of the total expenditures incurred during the period included the
cost of furniture and equipment acquired for the Corporation's headquarters, and the
cost of leasehold improvements, as well as certain prepayments which it was felt were
more properly chargeable in whole or in part against future accounting periods, partic-
ularly those in which revenues are likely to accrue, these items totalling $476,000
($535,000 shown above, less provision of $59,000 for depreciation and amortization
included in the operating expenses in the Corporation's financial statements for the period)
have been classed as "capital and prepaid development costs", and have been shown as
such in the Corporation's balance sheet. The total of $476,000 represents the proprietorship
equity of the three governments at December 31, 1963.
In the course of this initial examination of the Corporation's accounts and financial
statements, the attention of the management was drawn to certain transactions and
practices originating in the closing months of the year 1963 which, in the opinion of the
joint auditors, were inconsistent with those usually followed by Crown corporations and
government agencies facing similar problems. They were discussed in detail with both
the Commissioner General and the Deputy Commissioner General who explained why
they considered the expenditures involved to be necessary and particularly so at this
important stage in the Corporation's organization and development. In accepting these
explanations at that time, the joint auditors advised the management of their intention
to defer any further comment on the transactions and practices in question until the
completion of the examination of the Corporation's accounts for the succeeding year.
During the course of the examination, two instances were noted where limited value
was received by the Corporation for expenditures incurred :
1. As from July 1, 1963 arrangements were made to sub-lease a portion of the Corporation's
floor space in the Royal Bank Building in Montreal to a firm of industrial design and
interior planning consultants, at the same rent per square foot paid by the Corporation
to the Place Ville Marie Corporation, and up to the date of termination of the
Corporation's lease, i.e., November 15, 1965. No lease contract was drawn up but these
arrangements were confirmed by correspondence between the Corporation and the
sub-lessee. Towards the end of 1963, the Corporation being short of office space, agree-
ment was reached with the consultants for them to move to another floor in the same
building. The total of the expenses incurred by the Corporation in 1963 and 1964 in
connection with the move amounted to $19,000 of which amount the Corporation has
recovered $11,000 from the sub-lessee in 1964.
2. In July 1963 the Board of Directors authorized the engagement of a professional
engineer, to carry out the research necessary and to prepare a Critical Path Diagram
for the more efficient carrying out of the Corporation's objects and purposes, at a fee of
$28,000. A contract was drawn up but was never executed by the two parties, and the
arrangement was merely confirmed in a letter to the engineer dated August 6, 1963,
signed by the former Director of Operations of the Corporation. The above amount of
$28,000, as well as travelling expenses and translation costs totalling $5,005, was paid
by the Corporation in 1963.
95480—7
92 AUDITOR GENERAUS REPORT
From subsequent correspondence and memoranda on file, we gathered that the work
carried out and the report thereon submitted by the engineer in question failed to meet
the expectations and requirements of the Corporation. It was not possible to make a
precise evaluation of the unproductive portion of these costs.
The services of the professional engineer were dispensed with by the Corporation and
the continuation of the work involved in the preparation and maintenance of the
Critical Path Diagram was entrusted to a well-known firm of consultants in this
particular field.
140. Canadian National (West Indies) Steamships, Limited. The active operations
of this company ceased in 1958 on the sale of its fleet of eight vessels to Cuban interests
and the winding-up of the company's affairs is now under consideration.
The Crown's equity in the company at December 31, 1963 amounted to $495,000,
represented by cash, $39,000, and balance due under agreement of sale of vessels,
$470,000, less liability in respect of unclaimed matured bonds, $14,000.
The balance due under agreement of sale of vessels represented the final instalment,
including interest, due August 19, 1963 under terms of letter of credit confirmed by the
Bank of America, payment of which was prohibited by the Cuban Assets Control
Regulations of the United States of America dated July 8, 1963.
141. Canadian Overseas Telecommunication Corporation. The objects of this
Corporation, established in 1949 by the Canadian Overseas Telecommunication Corpora-
tion Act, now R.S., c.42, as amended, are: to establish, maintain and operate external
telecommunication services for the conduct of public communications, to carry on the
business of public communications, to improve the efficiency of telecommunication
services generally, and to co-ordinate Canada's external telecommunication services
with those of other nations. To these ends the Corporation, in 1950, acquired the Canadian
external telecommunication facilities of Cable and Wireless Limited and Canadian
Marconi Company Limited which provided cable and radio-telegraph circuits between
Canada and Britain, Australia, New Zealand, New York and St. Pierre and Miquelon,
and radio-telephone services to Britain and the West Indies. The most recent of many
major subsequent developments was the completion, in December 1963, of the Common-
wealth Pacific Cable System, a multi-channel, multi-purpose cable between Canada and
New Zealand and Australia, An extension of this service to South-East Asia is expected
to be in service in 1966.
The equity of the Crown in the Corporation amounted to $65,779,000 at March 31.
1964, an increase of $8,832,000 over the equity at the end of the previous year, and
consisted of advances of $55,462,000 for capital purposes and a surplus of $10,317,000.
The capital requirements of the Corporation are financed in part by loans provided
by parliamentary appropriations, with the balance provided out of accumulated earnings
AUDITOR GEJSERAVS REPORT 93
During the year the Crown advanced $7,820,000 for capital purposes, $2,000,000 of
which was advanced late in March and was on hand at the year-end. Capital additions
amounted to $6,086,000. At March 31, 1964 the estimated cost of completing approved
capital projects was $28,600,000, of which $10,400,000 related to the year ending March 31,
1965.
During the year surplus was increased by $2,692,000 of which $2,386,000 represented
the net profit for the year and $306,000 a net adjustment of the amount recoverable from
the Commonwealth Network for the years ended March 31, 1957 to 1963, inclusive.
The following is a summary of the income and expense of the Corporation for the
last two years :
Year ended March 31
1964 1963
Income —
Telephone, telegraph, telex, circuit rentals, etc $14,278,000 $12,321,000
Expense —
Salaries, wages and employee benefits 3,105,000 2,591,000
Depreciation 2,855,000 2,376,000
Rental of circuits 1,996,000 1,377,000
Interest 1,687,000 1,339,000
Operation, maintenance and repairs — buildings, plant and equipment 1,126,000 1,051,000
Other 575,000 517,000
11,344,000 9,251,000
Less: Estimated amount recoverable from Commonwealth Network 1,817,000 1,025,000
9,527,000 8,226,000
4,751,000 4,095,000
Cost of additional pension benefits — 116,000
Profit before income tax 4,751,000 3,979,000
Provision for income tax 2,365,000 1,971,000
Net profit $ 2,386,000 $ 2,008,000
Income increased by $1,957,000 or approximately 16% over that of the previous
ear, compared with an increase of 30% recorded last year. Revenue from all major
ervices provided by the Corporation was greater than in the previous year, although the
ate of increase in circuit rentals, the service which produces the major portion of the
Corporation's revenue, was less than in recent years. Expenses also increased by 16% over
hose of the previous year due to the increased activities of the Corporation.
95480— 7J
94 AUDITOR GENERAL'S REPORT
142. Canadian Patents and Development Limited. Section 17 of the Research Council
Act, R.S., c. 239, provides for the incorporation of one or more companies by the National
Research Council for the purpose of exercising certain of the powers conferred upon the
Council. Under this authority Canadian Patents and Development Limited was incorpor-
ated in 1947 under the Companies Act, 1934, for the purpose of making available to
industry, through licensing arrangements, the inventions and new processes developed by
the Council. The services of the company, which is located at Ottawa, are available to
government departments, publicly supported institutions and universities.
The following summary shows the results of the company's operations for the year
ended March 31, 1964 compared with the preceding year:
Year ended March 31
1964 1963
Income —
Royalties, licensing fees, etc $ 376,000 $ 554,000
Less: Costs of licensing rights and related technical assistance, etc. . . 25,000 63,000
351,000 491,000
Other income 41,000 24,000
392,000 515,000
Expense —
Promotion and development 103,000 7,000
Services provided by National Research Council 42,000 36,000
Patent attorneys' fees and other patent expenses 38,000 55,000
Salaries 29,000 29,000
Awards to inventors 15,000 19,000
Other expenses 16,000 3,000
243,000 149,000
Net profit $ 149,000 $ 366,000
The decreased income from royalties, licensing fees, etc., is largely attributable to one
licence. The income from two other licences was considerably less than in the preceding
year but in these instances there was a corresponding reduction in the cost of licensing
rights and related technical assistance, etc.
The increased cost of promotion and development resulted from the policy, referred
to in last year's Report, of placing more emphasis on the development of products and
techniques that the company was in a position to lease on a royalty basis to private
AUDITOR GENERAL'S REPORT 95
industry. In addition to the substantial increase in expense incurred in connection with
the program, there were also outstanding commitments of approximately $69,000 at
March 31, 1964. The reduction in the cost of patent attorneys' fees and other patent
expenses was largely due to the fact that there was no expense in the year under review
comparable to that incurred in the preceding year for the filing of patent applications
on a device in several countries.
The net profit of $149,000 resulted in a corresponding increase in the Crown's equity
in the company which, at March 31, 1964, was $969,000, comprising capital stock of
$296,000 and surplus of $673,000.
143. Centennial Commission. The Centennial Commission, formerly the National
Centennial Administration, was established by the Centennial of Canadian Confederation
Act, 1960-61, c. 60, as amended (1963, c. 36) to promote interest in, and to plan and
implement programs relating to, the Centennial of Confederation in Canada. The Com-
mission, with its head office in Ottawa, consists of a Commissioner, an Associate Commis-
sioner and twelve directors, all appointed by the Governor in Council.
Section 10 of the Act directs that there shall be a special account in the Consolidated
Revenue Fund, to be known as the Centennial of Confederation Fund, to which shall be
credited the amounts appropriated by Parliament for the purposes of the Fund. The
Minister of Finance may, on the recommendation of the Secretary of State of Canada
(who is the Minister designated by Order in Council P.C. 1964-156 of February 3, 1964
as the appropriate Minister under the Centennial of Canadian Confederation Act and the
Financial Administration Act), out of the Consolidated Revenue Fund pay to the
Commission "such amounts as are from time to time required for the purpose of making
j grants to any province, or to any organization the objects of which are similar to the
objects of the Commission, for the observance of the Centennial of Confederation in
Canada". The amounts paid by the Minister of Finance to the Commission are to be
charged to the Fund but a payment may not exceed the balance standing to the credit
of the Fund.
The purposes for which grants may be made out of the Centennial of Confederation
Fund, as defined by the Centennial of Canadian Confederation Act, have been restricted
by the Appropriation Acts which provided for payments to the Fund. Privy Council
Votes 55, Special Appropriation Act, 1963 and Appropriation Act No. 5, 1963, provided
for the payments of $1,000,000 in 1962-63 and $2,000,000 in 1963-64 respectively, to the
Centennial of Confederation Fund "to enable grants to be made to the Provinces for
local projects of a lasting nature (the total of such grants not to exceed $1 per capita of
population per Province)". No grants having been made out of the Fund, the balance
lit March 31, 1964 was $3,000,000.
96 AUDITOR GENERAL'S REPORT
All other expenditures are made from moneys appropriated by Parliament for the
purpose. The following is a summary of the expenses of the Commission for the year
ended March 31, 1964:
Grants, programs and projects $ 1,495,000
Administrative expense —
Salaries and employee benefits $ 272,000
Professional and special services 45,000
Travel 34,000
Accommodation 25,000
Stationery, supplies and office equipment 16,000
Other 27,000
419,000
S 1,914,000
Of the total expense of $1,914,000, an amount of $1,882,000 was provided by parliamentary
appropriation and $32,000 was the estimated value of accommodation and accounting
services provided without charge by government departments.
Payments on account of grants, programs and projects were made pursuant to
section 9 of the Act which provides that the Commission may, subject to the approval of
the Governor in Council for expenditures greater than $25,000, undertake programs and
projects related to the observance of the Centennial of Confederation and engage in joint
programs with, or make grants to, any province or any organization with objects similar
to those of the Commission for the observance of the Centennial of Confederation. The
largest of these was $1,306,000 paid to the Fathers of Confederation Memorial Citizen
Foundation representing the Federal Government's 1963-64 contribution toward the
construction of the Fathers of Confederation Memorial Building at Charlottetown, P.E.I.
The Centennial Commission and various provincial governments are sharing the cost of
this building equally, with the federal contribution being limited to $2,800,000. To
March 31, 1964 the Commission's contributions to this project totalled $1,556,000.
144. Cornwall International Bridge Cornpany Limited. The shares of this company
are owned equally by The St. Lawrence Seaway Authority and the Saint Lawrence Sea-
way Development Corporation (a United States Government corporation).
The company has been in process of winding up since July 3, 1962, when it ceased
to operate the toll bridge system across the St. Lawrence River between Cornwall,
Ontario, and Rooseveltown, New York. The system is now operated by The Seaway
International Bridge Corporation, Ltd., a subsidiary of The St. Lawrence Seaway
Authority.
The equity of the Seaway entities in the company at September 30, 1963 consisted
of capital stock of $50,000 less a deficit of $6,000.
AUDITOR GENERAL'S REPORT 97
Since the close of its financial year ended September 30, 1963, the company has
transferred free of charge to the Town of Massena, New York, a bridge over the
Racquette River, a road serving the bridge, and land for the road allowance. The remain-
ing parcels of land owned by the company have been offered for sale.
145. Crown Assets Disposal Corporation. In 1944 the Surplus Crown Assets Act
established the War Assets Corporation which, by a 1949 amendment to the Act, became
the Crown Assets Disposal Corporation. With certain specified exceptions, the Corpora-
tion is responsible for the disposal of the surplus assets of all government departments
and most of the Crown corporations and agencies. Also, the Corporation has entered into
agreements with Britain and the United States whereby it disposes of surplus Canadian
property of these countries. The head office of the Corporation is in Ottawa, with sales
offices in a number of Canadian cities.
As has been the case for a number of years, the Corporation was authorized for the
1963-64 financial year to retain 4% of the net proceeds of sales of lands and buildings
and of the interest earned on long-term sales agreements and 10% of the net proceeds
of all other sales to meet its administrative and other expenses. A summary of the
Corporation's income and expense for the year ended March 31, 1964, together with
comparable figures for the preceding year, follows:
Year ended March 31
1964 1963
Income —
Percentage of net proceeds of sales made and of other income
earned, etc $ 832,000 $ 755,000
Expense —
Salaries 453,000 450,000
Employees' welfare benefits 43,000 44,000
Rent 55,000 53,000
Telephone, telegrams and postage 23,000 27,000
Printing, stationery and office supplies 24,000 22,000
Travel 15,000 14,000
Other expenses 11,000 10,000
624,000 620,000
Excess of income over expense $ 208,000 $ 135,000
The $77,000 increase in income was due to a larger volume of sales, from the net
proceeds of which the Corporation retains the authorized percentages referred to above.
Pursuant to section 81 of the Financial Administration Act, the Corporation was
directed to pay to the Receiver General, as of March 31, 1959, and from time to time
98 AUDITOR GENERAL'S REPORT
thereafter but at intervals of not longer than six months, all of its surplus in excess of
$100,000. The $208,000 excess of income over expense for the year under review was, in
consequence, paid to the Receiver General, leaving the surplus balance unchanged at
$100,000.
The equity of the Crown in the Corporation's agency account at March 31, 1964
was $5,197,000, compared with $5,884,000 at the end of the preceding year, and was
largely represented by amounts totalling $4,922,000 receivable under long-term interest-
bearing sales agreements.
The transactions in the agency account during the year ended March 31, 1964,
compared with the preceding year, are summarized as follows:
Year ended March 31
1964 1963
Proceeds from sales, etc.
Government of Canada $10,194,000 $ 7,790,000
Other principals 822,000 823,000
Interest 223,000 268,000
11,239,000 8,881,000
Less : Direct costs relating to sales 42,000 29,000
11,197,000 8,852,000
Deduct :
Percentage of net proceeds from sales, etc. retained by the
Corporation 832,000 755,000
Remittances to Receiver General of Canada 10,314,000 8,715,000
Other remittances 642,000 745,000
11,788,000 10,215,000
Increase (decrease) in equity:
Government of Canada ( 687,000) (1,358,000)
Others 96,000 ( 5,000)
$( 591,000) $(1,363,000)
The greater part of the increase in sales on behalf of the Government of Canada
is accounted for by the sale during the year of the Toronto Armouries to the Municipality
of Metropolitan Toronto for $2 million.
146. Defence Construction (1951) Limited. This Crown-owned agency was incor-
porated in 1951 under the Companies Act, 1934, pursuant to the authority in section 7
of the Defence Production Act, now R.S., c. 62. The company is responsible for awarding
and supervising contracts for defence construction projects. Funds to finance the projects
are provided by the departments concerned, or by the United States Government for
projects undertaken on its behalf. Expenditures on defence construction projects which
AUDITOR GENERAL'S REPORT 99
were approved by the company for payment by the Department of National Defence
and by the United States Government decreased from $72 million in 1962-63 to $29
million in 1963-64. The decrease was due to the completion of projects awarded in prior
years and a decrease in the value of awards made in 1962-63.
Funds to cover the company's operating expenses are provided annually by means
of a Department of Defence Production appropriation. The following is a comparative
summary of the operating results for the past two years:
Year ended March 31
1964 1963
Expense —
Salaries and living allowances $ 1,949,000 $ 2,575,000
Travel and removal 163,000 246,000
Employees' welfare benefits 140,000 181,000
Other expenses 280,000 265,000
2,532,000 3,267,000
Income —
Reimbursement for engineering and administrative services 21,000 45,000
Other income 1,000 1,000
22,000 46,000
Net expense $ 2,510,000 $ 3,221,000
A reduction in staff during the year accounted for the decrease in expense.
147. Eldorado Aviation Limited. This company, incorporated in 1953 under the
Companies Act, is a wholly-owned subsidiary of Eldorado Mining and Refining Limited.
Operating from headquarters in Edmonton, it provides air transportation services on
behalf of the parent company and Northern Transportation Company Limited, another
subsidiary of Eldorado Mining and Refining Limited. These two companies share the
cost of operations of Eldorado Aviation Limited on a "cost per ton-mile" basis.
The equity of Eldorado Mining and Refining Limited at December 31, 1963 amounted
to $256,000 comprising capital stock of $28,000, surplus of $128,000 and reserve for
uninsured losses of $100,000. This reserve was established during the year by the transfer
of $100,000 from surplus to segregate an amount which, in the opinion of management,
was sufficient to provide for potential losses due to accidents to aircraft not covered by
commercial insurance, particularly in view of the company's decision in the previous year
to increase the deductible portion of aircraft insurance coverage from $5,000 to $25,000.
95480—8
100 AUDITOR GENERAL'S REPORT
The following is a comparative summary of the net expenses of the company for its
last two financial years:
Year ended December 31
1963 1962
Salaries, wages and contributions to employees' pension plan $ 187,000 $ 251,000
Repairs 167,000 81,000
Supplies 153,000 134,000
Depreciation 49,000 59,000
Hangar expense 44,000 32,000
Insurance 35,000 50,000
Other 41,000 32,000
Total expenses 676,000 639,000
Less : Miscellaneous income 5,000 30,000
Net expenses $ 671,000 $ 609,000
The net expenses for 1963 were recovered from Eldorado Mining and Refining
Limited to the extent of $533,000 and from Northern Transportation Company Limited
to the extent of $138,000.
The decrease of $64,000 in salaries, wages and contributions to employees' pension
plan was largely due to mechanics' wages totalling $20,000 expended in reconditioning a
recently-acquired used DC-3 aircraft being charged to its capital cost, and to there being
no counterpart to the payment of the final annual instalment of $40,000 made in 1962 to
the employees' pension plan covering the company's share of the cost of increased pension
benefits.
The increase in repair expenses of $86,000 included $57,000 expended to date on the
overhaul of a DC-4 aircraft and costs of $20,000 incurred in repairing a Bell helicopter
damaged in an accident.
148. Eldorado Alining and Refining Limited. This company was incorporated in 1945
under the Companies Act, 1934, following expropriation by the Government of Canada
in 1944 of the shares of a privately-owned company incorporated in 1927. The head office
of the company is in Ottawa, the Beaverlodge mine is near Uranium City, Saskatchewan,
and the refinery and administrative offices are in Port Hope, Ontario. The principal
functions of the company are to produce, refine and sell uranium and allied products.
The equity of the Crown in the company at December 31, 1963 amounted to
$51,051,000, consisting of capital stock of $6,586,000 and surplus of $44,465,000. Dividends
of $2,000,000 were paid to the Receiver General during the year, compared with $3,000,000
paid in the preceding year.
In 1962 the company contracted to sell to the United Kingdom Atomic Energy
Authority 24,000,000 pounds of U308 in concentrates between the years 1962 and 1971.
Under parallel agreements, the company contracted to purchase 20,917,000 pounds of
U308 from six producers. The balance of 3,083,000 pounds is to be supplied from the
company's own mine. The contract provides for the deferment of payment for certain
deliveries until the later years of the contract period. The amounts of about $21,000,000
AUDITOR GENERAL'S REPORT 101
thus deferred at December 31, 1963 were expected to reach a maximum of almost
$32,000,000 in 1965 and to decline thereafter until fully paid in 1973.
The concentrates being procured under the aforementioned and certain other contracts
are purchased in some cases at unit prices higher and in other cases lower than the prices
at which the concentrates are to be sold to the United States and United Kingdom
governments; however, all purchase costs will be recovered before the contracts are
completed. Charges are being applied against the contract revenue for the company's
services in administering and financing the ore procurement program. At December 31,
1963 the excess of costs and expenses over sales of concentrates procured from other
producers amounted to $3,000,000, of which $1,200,000 was incurred in the year under
review. All such excess costs and expenses will be offset in subsequent periods when
deliveries will be made at prices exceeding the costs of acquisition.
During 1963 the Governor in Council granted authority for the entry into contracts
between Her Majesty the Queen in right of Canada, represented by Eldorado Mining and
Refining Limited, and certain Canadian uranium producers for the purchase by Her
Majesty of uranium-bearing concentrates. At December 31, 1963 the company was the
custodian of uranium concentrates thus acquired at a total cost of $6,342,000. Funds
for the acquisition of these concentrates were provided by Department of Trade and
Commerce Vote L63c, Appropriation Act No. 5, 1963 and accordingly their cost was
not included in the accounts of the company (see paragraph 97).
The following is a summary of income and expense for the financial year 1963, in
comparison with the preceding year:
Year ended December 31
1963 1962
Income —
Sales of uranium concentrates, uranium metal and related products,
and revenue from refining services $24,281,000 $26,695,000
Expense —
Mining, milling, refining and other expenses 11,873,000 12,160,000
Depreciation 4,162,000 3,952,000
Amortization of cost of acquiring rights to deliver concentrates on
cancellation of contract with another producer 3,468,000 3,234,000
Amortization of pre-production, mine development and other
deferred expenditures 807,000 836,000
Scientific research 769,000 351,000
21,079,000 20,533,000
Net income from operations 3,202,000 6,162,000
Income arising from the financing of ore procurement program 1,255,000 264,000
Interest and other non-operating income (net) 1,226,000 1,384,000
5,683,000 7,810,000
Provision for income tax 2,900,000 3,600,000
Net income $ 2,783,000 $ 4,210,000
95480—84
102 AUDITOR GENERAL'S REPORT
The downward trend in sales volume and the adverse effect of the deferment of
deliveries under the terms of certain contracts has resulted in a decline of $2,414,000 in
sales revenue.
Included in the mining, milling, refining and other expenses is $427,000 representing
the sum of the write-off of $224,000 due to a revaluation of uranium and uranium
products inventory at the Port Hope refinery to current market values and the write-off
of obsolete and slow-moving stores at Beaverlodge in the amount of $203,000.
In 1960 the company acquired, at a cost of $19 million, the rights of another uranium
producer to deliver concentrates to the United States Atomic Energy Commission. This
cost is being amortized on a pro rata basis against the total production remaining to be
supplied from the Beaverlodge mine. After amortizing $3,468,000 during the year, a
balance of $3,121,000 at the year-end remained to be written off.
Under the provisions of the contract for the delivery of 24,000,000 pounds of uranium
concentrates to the United Kingdom Atomic Energy Authority, the basic selling price
is $5.37 per pound and the average cost of procurement is $4.95^. Thus there is an average
excess of selling price over cost of 41^ cents per pound to cover costs of administering
the contract and financing deferred payments. Deliveries during 1963 were 3,146,274
pounds resulting in an excess of selling price over average cost of $1,306,000. After
allowance for administrative costs of $67,000 and a special credit of $16,000 obtained
under one of the contracts, a balance of $1,255,000 remained as income arising from the
financing of this portion of the ore procurement program.
149. Export Credits Insurance Corporation. This Corporation was established in
1944 by the Export Credits Insurance Act, R.S., c.105, to provide insurance to Canadian
exporters of goods and services against the risk of non-payment by foreign buyers. The
Corporation, which has its head office in Ottawa and branches in Montreal and Toronto,
is intended to operate on a self-sustaining basis from premiums charged on contracts of
insurance. Where the Corporation is of the opinion that a proposed contract of insurance
would impose upon it a liability for a term or in an amount in excess of that which it
would normally undertake, it may seek the approval of the Governor in Council, pursuant
to section 21 of the Act, to enter into the proposed contract of insurance. In the
event of a loss under this section (there has been none) the moneys required to discharge
the liability are payable from unappropriated moneys in the Consolidated Revenue
Fund. A 1959 amendment to the Act introduced section 21A under which the Corporation
may, with the authority of the Governor in Council, provide financing for long term
export sales of capital goods with funds available out of the Consolidated Revenue Fund.
The Crown's equity in the Corporation at December 31, 1963 was $57,291,000 con-
sisting of share capital of $5,000,000, capital surplus of $5,000,000, earned surplus of
$3,254,000 and an underwriting reserve of $5,000,000, together with advances and accrued
interest totalling $39,037,000 in respect of long term financing of sales agreements under
section 21A of the Act. The Corporation held Government of Canada bonds having a par
value of $18,900,000.
Export sales insured by the Corporation on its own account during 1963 totalled
$100,000,000 on which premiums of $673,000 were earned. Export sales insured under
AUDITOR GENERAL'S REPORT 103
section 21 of the Act totalled $46,000,000 and premiums amounted to $513,000 of which
$385,000 was remitted to the Receiver General and $128,000 was retained by the Corpora-
tion in respect of expenses and overhead, in accordance with a basis authorized by the
Minister of Trade and Commerce. At December 31, 1963 the liability of the Corporation
under contracts of insurance issued and outstanding totalled $293,314,000 of which
$206,532,000 was for contracts entered into under section 21 of the Act.
At December 31, 1963, after three years of operation in the field of direct financing
of long term export sales of capital goods under the authority of section 21A of the Act,
the Corporation had signed agreements to finance export sales amounting to $147,000,000
of which $67,000,000 had been disbursed. In addition, the Corporation had agreed to
finance $39,000,000 of prospective sales and had undertaken to guarantee negotiable
instruments totalling $7,810,000 with respect to completed sales. During the year the
Corporation also sold guaranteed promissory notes having a face value of $27,000,000,
which had been purchased under section 21A, to the Export Finance Corporation of
Canada, Ltd. (a subsidiary of the Canadian chartered banks). The Corporation continues
to be responsible for the administration of these notes, which mature within five years,
and guarantees payment of principal and interest.
The following is a comparative summary of operations for the past two financial
years :
Year ended December 31
1963 1962
Income —
Premiums and fees earned $ 1,003,000 $ 921,000
Expense —
Salaries and employee benefits 381,000 316,000
Rents 36,000 33,000
Stationery, printing and office expenses 29,000 16,000
Travel 25,000 21,000
Communications expense and credit reports 20,000 19,000
Other 27,000 34,000
518,000 439,000
485,000 482,000
Policyholders' claims —
Recoveries 597,000 687,000
Payments 195,000 164,000
402,000 523,000
Excess of income and net recovery on policyholders' claims over expense 887,000 1,005,000
Add : Interest on investments 774,000 719,000
1,661,000 1,724,000
Provision for income tax 796,000 828,000
Surplus $ 865,000 $ 896,000
104 AUDITOR GE1SERAUS REPORT
The cost of additional staff for the Export Finance Division formed in 1961 and for
insurance and general administration was largely responsible for the increase of $79,000
in the Corporation's expenses during the 1963 financial year.
The following is a summary of transactions during the year in respect of claims
paid to policyholders:
Outstanding Claims Amounts Written Outstanding
Type of claim Jan. 1, 1963 paid recovered off Dec. 31, 1963
Insolvency $ 198,000 $ 98,000 $ 18,000 $ 14,000 $ 264,000
Default 299,000 52,000 15,000 76,000 260,000
Exchange transfer 982,000 34,000 564,000 (42,000) 494,000
Other 1,000 11,000 — 11,000 1,000
$ 1,480,000 $ 195,000 $ 597,000 $ 59,000 $ 1,019,000
Of the amount of $1,019,000 in claim payments shown above as outstanding at
December 31, 1963, the Corporation anticipates making substantial recoveries, particularly
in respect of those claims, amounting to $494,000, which were paid because of exchange
transfer difficulties in the buyers' countries. The amounts to be recovered will be added
to income in the years in which recoveries are effected.
150. Farm Credit Corporation. This Corporation was established in 1959 by the
Farm Credit Act, 1959, c. 43, to succeed the Canadian Farm Loan Board which had
operated since 1929. The purpose of the Corporation is to make, administer and supervise
long term mortgage loans to farmers. The head office is in Ottawa and there are seven
branches and 124 field offices throughout Canada.
During the year under review the Government of Canada paid a further $3,000,000
into the capital of the Corporation and advanced an additional $66,905,000 (net) by
way of loans. At March 31, 1964 the equity of the Government in the Corporation
amounted to $350,377,000, comprising: capital, $13,350,000; loans, $325,523,000; accrued
interest on loans, $9,839,000; and reserve for losses, $1,665,000.
During the year, 7,802 loans (6,453 in 1962-63) were disbursed to farmers to a total
of $96,316,000 ($78,428,000 in 1962-63) and repayments amounted to $25,426,000
($20,287,000 in 1962-63). Loans outstanding at the year-end, including accrued interest,
amounted to $350,357,000 compared with $277,485,000 at the end of the previous year.
The following is a comparative summary of the income and expense of the Corpora-
tion for the past two years:
Year ended March 31
1964 1963
Income —
Interest earnings $15,120,000 $11,806,000
Deduct : Interest on loans from the Government of Canada 13,188,000 10,200,000
1,932,000 1,606,000
Appraisal, supervision and legal fees 521,000 500,000
2,453,000 2,106,000
AUDITOR GENERAL'S REPORT 105
Year ended March 31
1964 1963
Expense —
Salaries and employee benefits 2,764,000 2,427,000
Travel 310,000 277,000
Office accommodation 217,000 212,000
Postage, express, telephone, and telegraph 84,000 78,000
Printing, stationery and office supplies 72,000 80,000
Rental and maintenance of office equipment 27,000 12,000
Fees and expenses of part-time appraisers 18,000 21,000
Management consultants' fees 16,000 —
Depreciation 36,000 36,000
Other 28,000 43,000
3,572,000 3,186,000
Net operating loss carried to Reserve for Losses $ 1,080,000
Net operating loss, provided for by parliamentary appropriation ....$ 1,119,000
The increase of $386,000 in expense for the year ended March 31, 1964 resulted
largely from the continued growth in lending activity and the consequent expansion of
the Corporation which has resulted in an increase in staff from 183 at March 31, 1960
to 468 at March 31, 1963 and 498 at March 31, 1964.
In my report under section 87 of the Financial Administration Act, on the examina-
tion of the accounts of the Corporation for the year ended March 31, 1964, reference was
made to the reduction in the Reserve for Losses during the past four years, due in part to
the statutory obligation placed on the Corporation to lend money at a fixed rate, as
follows :
"Section 15 of the Farm Credit Act requires the Corporation to establish a Reserve
out of which may be paid 'any losses sustained by the Corporation in the conduct of its
business'. The section further provides that the Corporation shall credit its net earnings each
year to this Reserve until the amount of the Reserve equals the capital of the Corporation,
which amounted to $13,350,000 at March 31, 1964. In the years up to March 31, 1960,
the Reserve for Losses had been built up to an amount of $3,748,862, including $3,486,048
accumulated by the predecessor corporation (Canadian Farm Loan Board) to March 31, 1959.
"Because the statutory lending rate of 5% on loans to farmers has not provided sufficient
income to cover the interest paid on borrowings from the Government of Canada, administra-
tive expenses and losses on loans, the Corporation has had annual losses since 1961. Losses
aggregating $2,078,299 to March 31, 1963 were charged against the Reserve for Losses.
The operating loss of $1,118,796 for the year ended March 31, 1964 was recovered from a
Parliamentary appropriation (Vote 174e, Department of Agriculture) provided for that
purpose and losses of $5,223 on real estate transactions were charged to the Reserve for
Losses during the year. The balance in the Reserve at the year end was $1,665,340.
"While continuation of the policy introduced during the year of providing a Parlia-
mentary appropriation to cover the annual operating loss of the Corporation will prevent
further depletion of the Reserve by such losses, no provision has been made for the building
up of the Reserve to an amount equivalent to the capital of the Corporation as is
contemplated by the Farm Credit Act."
106 AUDITOR GENERAVS REPORT
The amendment to the Farm Credit Act which was assented to on June 18, 1964
increased the limits on borrowing for a single farming enterprise under Part II of the Act
from $20,000 to $40,000 and under Part III of the Act from $27,500 to $55,000. The interest
rate of 5% per annum remains unchanged on amounts loaned by the Corporation up to
the previously existing limits of $20,000 and $27,500, but the interest rate to be charged
on moneys loaned in excess of these amounts may from time to time be prescribed by
the Corporation with the approval of the Governor in Council "which rate shall be
sufficient, if the whole amount of the loan were to be loaned by the Corporation at that
rate, to return to the Corporation an amount equal to the cost to the Corporation of any
money borrowed for the purposes of the loan and the expenses of the Corporation in
respect thereof, including a reasonable reserve against loss".
On June 25, 1964 an interest rate of 6f % per annum was approved for moneys loaned
under the new increased limits. Since this rate applies only to the portion of any loan in
excess of $20,000 or $27,500, as the case may be, the operations of the Corporation will
continue to result in an annual operating loss.
151. The National Battlefields Commission. This Commission, which was constituted
by the National Battlefields at Quebec Act, 1908, c. 57, with the objects of acquiring
and preserving the historic battlefields at Quebec, comprises nine members, seven of
whom are appointed by the Governor in Council and one by the governments of each of
the provinces of Ontario and Quebec.
Prior to 1958 the Commission was financed by statutory grants made from time to
time under the constituting Act, but since then the Commission has been financed by
annual parliamentary appropriations. At March 31, 1964 the proprietary equity of the
Crown in the Commission amounted to $1,489,000 represented by an investment of
$1,479,000 in capital assets and $10,000 in working capital.
The following is a summary of the expenses of the Commission for the year under
review compared with those of the preceding year :
Year ended March 31
1964
Salaries, wages and related expenses $ 154,000
Policing services
Repairs of roads and driveways
Light, heat, power, gasoline and oil
Operating supplies and nursery stock
Other expenses
Capital outlays
1964
1963
$ 154,000
$ 151,000
20,000
14,000
18,000
21,000
11,000
10,000
9,000
10,000
7,000
6,000
219,000
212,000
19,000
21,000
$ 238,000
$ 233,000
AUDITOR GENERAL'S REPORT 107
The expenses of the Commission were financed to the extent of $231,000 by parlia-
mentary appropriation and the balance of $7,000 was provided by utilization of surplus
available from previous years' operations.
Salaries, wages and related expenses include $4,000 paid to the former Secretary of
the Commission on his appointment, by resolution of the Commission, as Associate
Secretary and Counsel in order that he might complete the five years of service required
for pension eligibility.
Funds contributed by provincial and municipal governments and others in the years
following the establishment of the Commission in 1908, which may be used only for
the acquisition of land with prior parliamentary approval, amounted to $30,000 at
March 31. 1964. The only changes in the balance of this account in over thirty years
have been the increases arising out of investment earnings.
152. National Capital Commission. This Commission was established by the National
Capital Act, 1958, c.37, to succeed the Federal District Commission which had been
established in 1927 as the successor to the Ottawa Improvement Commission, 1899.
The objects and purposes of the Commission under the Act are "to prepare plans
for and assist in the development, conservation and improvement of the National Capital
Region in order that the nature and character of the seat of the Government of Canada
may be in accordance with its national significance". Subject to the control exercised
by the Governor in Council, the Commission has wide powers including those relating
to: acquisition and development of property; construction and maintenance of parks,
roads, bridges, buildings and other works; undertaking joint projects with municipalities
or making grants to municipalities; construction and operation of concessions; and the
administration of historic buildings and sites. The Commission consists of 20 members
appointed by the Governor in Council from across Canada.
The proprietary interest of the Government of Canada in the Commission, including
loans, at March 31, 1964 totalled $99,049,000 represented by: cash, $384,000; inventories
of tools, equipment and supplies, $215,000; and cost of capital assets, $98,450,000.
The Commission's activities are financed by annual parliamentary appropriations,
withdrawals from the National Capital Fund and loans from the Government of Canada,
along with incidental revenues from rentals, etc. A summary of the expenditure and
other transactions for the past two years is as follows:
Year ended March 31
1964 1963
Operation and maintenance of parks, parkways and grounds adjoining
Government buildings at Ottawa and Hull and general administration
Expenditures $ 2,892,000 $ 3,131,000
Provided for by:
Parliamentary appropriations 2,668,000 2,905,000
Revenue 224,000 226,000
$ 2,892,000 $ 3,131,000
108 AUDITOR GENERAL'S REPORT
Year ended March 31
1964 1963
National Capital Fund transactions
Amount due from National Capital Fund at beginning of year $ (258,000) $ —
Balance of Fund in hands of Commission at beginning of year — 302,000
Add:
Amounts drawn from Fund 7,850,000 5,500,000
Proceeds from sales of property 177,000 120,000
7,769,000 5,922,000
Deduct :
Capital outlays for parks, parkways, railway lines and structures, etc. 3,960,000 3,367,000
Repayment of loans to acquire property now in use — Ottawa River
Parkway 61,000 —
Maintenance of land and rehabilitation works 90,000 81,000
Contributions to the City of Ottawa and other municipalities towards
the cost of constructing roads, bridges, sewers, etc 2,672,000 2,732,000
6,783,000 6,180,000
Amount due from National Capital Fund at end of year $ 258,000
Balance of Fund in hands of Commission at end of year $ 986.000
Acquisition of property in the National Capital Region through loans
provided by the Government of Canada
Unexpended balance of loans at beginning of year $ 1,230,000 $ 901,000
Add:
Government of Canada loans (net) 12,081,000 9,428,000
Proceeds from sales of property 119,000 372,000
13,430,000 10,701,000
Deduct :
Expenditures for acquisition of property 13,047,000 9,471,000
Unexpended balance of loans at end of year $ 383,000 $ 1,230,000
Interest charges on outstanding Government of Canada loans
Interest on loans $ 2,319,000 $ 1,776,000
Provided for by:
Parliamentary appropriation $ 1,990,000 $ 1,475,000
Net revenue from rentals of property and interest earnings 329,000 301,000
$ 2,319,000 $ 1,776,000
AUDITOR GENERAL'S REPORT 109
The expenditures incurred in the various activities of the Commission, as sum-
marized above, totalled $25,041,000 during the year compared with $20,558,000 in the
preceding year and were financed as follows:
Year ended March 31
1964 1963
Parliamentary appropriations $11,264,000 $10,440,000
Loans to the Commission 12,928,000 9,099,000
Proceeds from sales of property 296,000 492,000
Revenues of the Commission 553,000 527,000
$25,041,000 $20,558,000
The Public Accounts Committee gave further consideration to the practice of
requiring the National Capital Commission to seek parliamentary appropriations to
enable it to pay interest on funds provided to it for the purchase of properties. In its
Sixth Report 1964 (see Appendix 1, item 36) the Committee again requested the Depart-
ment of Finance to review the existing practice with the National Capital Commission
with a view to placing the financing of the Commission on a more realistic basis.
153. National Harbours Board. This Board was established in 1936 by the National
Harbours Board Act, now R.S., c. 187, and has jurisdiction over the harbours of Halifax,
Saint John, Chicoutimi, Quebec, Trois-Rivieres, Montreal (including the Jacques Cartier
and Champlain Bridges), Churchill and Vancouver, together with the grain elevators at
Prescott and Port Colborne. The head office of the Board is in Ottawa.
The proprietary equity of the Government of Canada at December 31, 1963 totalled
$478,290,000, comprising: assets transferred to the Board on its establishment and
subsequently, $56,917,000; loans and advances, $316,787,000; interest in arrears on loans
and advances, $78,559,000; and reserves, $104,426,000; less the accumulated deficit of
$78,399,000.
There was a net increase of $7,905,000 during the year in the outstanding loans and
advances, the following being a summary of the changes in this account :
Balance, January 1, 1963 $ 308,882,000
Add:
Loans during year, secured by certificates of indebtedness 8,893,000
Advances 100,000
317,875,000
Less: Repayments during year 1,088,000
Balance, December 31, 1963 $ 316,787,000
HO AUDITOR GENERAL'S REPORT
The interest in arrears on the loans and advances has also increased steadily and,
although outstanding interest amounting to $44,790,000 was cancelled in 1947, interest in
arrears had reached $78,559,000 as at December 31, 1963. In previous Reports it has been
observed that there appears little prospect of the Board being in a position to meet its
principal and interest obligations and it was recommended that the financial structure be
reconstituted on a more realistic basis. We are informed that this matter is now under
active study.
Accounts receivable by the Board included the sum of $185,000 due from the Quebec
Natural Gas Corporation for rental charges by the Board for the easement for a 20-inch
natural gas pipeline on the Jacques Cartier Bridge. The amount represents $112,000
outstanding on December 31, 1962 plus $73,000 charged for 1963. In our previous Reports
it was noted that authority for the installation of the pipeline was granted by the Board
on May 1, 1959 subject to later negotiation of the annual rental rate but that the
Corporation subsequently would not agree to the rate proposed and requested the Board
to consider one that was little more than nominal. Agreement still remains to be reached
with respect to the rate to be charged.
The Jacques Cartier Bridge was operated, until revocation of tolls on June 1, 1962,
under a tri-partite agreement, a provision of which required the City of Montreal and the
Province of Quebec to pay to the Board one-third of any annual deficit arising from the
operations of the Bridge, to a maximum of $150,000 each. In 1944 the Province refused to
make the required contribution and as of the end of 1949 the accumulated indebtedness
of the Province amounted to $744,425. From 1950 until the revocation of tolls the Bridge
did not incur an operating deficit and the accounts of the Board continue to show this
amount as due from the Province. In our 1963 Report it was pointed out that the settle-
ment of this claim and the transfer of the Bridge to the Province had been subjects of
negotiations between the Board and the Province but the claim was not settled nor was
the Bridge transferred to the Province during the year under review.
Repeated reference has been made in previous Reports to the dispute between the
Board and the Canadian Pacific Railway regarding the ownership of certain areas of
Coal Harbour, Vancouver. Title to the areas involved has been in dispute since 1880 and,
pending settlement of the matter, the C.P.R. collects rental and other revenue from
certain areas in its possession while the Board does likewise in respect of certain areas
which the Board has occupied. At December 31, 1963 the Board held $153,000 in cash
and securities and the C.P.R. held $235,000 in escrow. No progress was made towards
settlement of the dispute during the year.
In preceding years the Board's statement of income and expense reflected the
combined results of operations of the harbours, elevators and bridges. Because imposition
of tolls on the Jacques Cartier Bridge was revoked in 1962 and management regarded
the loss experienced by the Champlain Bridge as mainly due to competition with toll-free
bridges, the Board segregated the results of operations of the harbours and elevators from
AUDITOR GENERAL'S REPORT 111
that of the bridges by the preparation of separate statements of income and expense. The
following is a summary of the operations of the harbours and elevators and of the bridges
for the past two financial years:
Year ended December 31
1963 1962
Harbours and Elevators
Operating income —
Harbours $ 3,237,000 $ 3,184,000
Wharves and piers 9,690,000 9,267,000
Grain elevator systems 9,074,000 7,539,000
Cold storage systems 1,275,000 1,131,000
Permanent sheds 2,037,000 2,023,000
Railway systems 748,000 705,000
Miscellaneous services 1,227,000 1,213,000
27,288,000 25,062,000
Operating and administrative expenses —
Harbours 3,687,000 3,870,000
Wharves and piers 1,121,000 1,186,000
Grain elevator systems 6,010,000 5,235,000
Cold storage systems 1,130,000 1,173,000
Permanent sheds 1,382,000 1,485,000
Railway systems 1,087,000 1,103,000
Miscellaneous services 1,318,000 1,460,000
Administrative expenses 2,285,000 2,172,000
18,020,000 17,684,000
Net operating income 9,268,000 7,378,000
Other income —
Income from investments 2,307,000 2,475,000
Miscellaneous 147,000 169,000
11,722,000 10,022,000
Special charges —
Provision for interest on loans and advances 9,157,000 8,547,000
Provision for replacement of capital assets 4,519,000 4,292,000
Other 374,000 582,000
14,050,000 13,421,000
Net loss $ 2,328,000 $ 3,399,000
112 AUDITOR GENERAL'S REPORT
Year ended December 31
1963 1962
Bridges
Operating income —
Jacques Carrier Bridge $ 152,000 $ 1,519,000
Champlain Bridge 448,000 170,000
600,000 1,689,000
Operating expenses —
Jacques Cartier Bridge 255,000 486,000
Champlain Bridge 426,000 182,000
681,000 668,000
Net operating income (loss) (81,000) 1,021,000
Special charges —
Provision for interest on loans and advances 1,521,000 917,000
Provision for replacement of capital assets 508,000 201,000
Other 68,000 82,000
2,097,000 1,200,000
Net loss $ 2,178,000 $ 179,000
The unprecedented sales of wheat to Russia during 1963 increased revenue from
grain elevation, top wharfage, berthage and from the railway systems. Other factors also
contributed to the increased revenue of the harbours. A labour strike in the New York
harbour resulted in the diversion of ships to Halifax and Saint John. At Montreal, the
rental of space in newly constructed permanent sheds accounted for $89,000 and an
increase in income from the use of heavy-lift equipment in handling locomotives and large
transformers amounted to $83,000. At Vancouver, a new lease negotiated during the year
provided that the rental rate be increased retroactively to August 1, 1961 thereby
producing an increase of $163,000 in elevator rentals. Except for the foregoing, the
increase in revenue from harbours and elevators was almost entirely due to increased
business activity.
As all tolls and charges assessable in respect of passage of vehicles over the Jacques
Cartier Bridge were revoked as of June 1, 1962, there was a decrease of approxi-
mately $1.4 million in revenue from this source. There was, however, an increase of
$25,000 in the income derived from investments, easements, etc. The Champlain Bridge
recorded its first full year of operations as of December 31, 1963, having been opened
for traffic on June 29, 1962.
The increase in operating and administrative expenses during 1963 was mainly due
to the increased use of facilities resulting from the large shipments of wheat. There were,
however, decreases in expenses at three locations. In Vancouver, cargo handling costs
declined by $109,000 mainly due to a reduction in rates under a stevedoring contract
renegotiated late in 1962. At Quebec, approximately $144,000 was spent in 1962 on major
repairs to a quay wall and, at Halifax, some $55,000 on a timber crib for a pier and on
AUDITOR GETSERAVS REPORT 113
power house motors. No major maintenance expenditures were incurred during 1963 at
these locations.
The decrease in the operating expenses of the Jacques Cartier Bridge was due
primarily to revocation of tolls since salaries and uniforms of toll-gate attendants, rental
of automatic toll equipment and other charges were thus eliminated. On the other hand,
the increase in costs of operating the Champlain Bridge was directly due to this bridge
being in service for a full twelve-month period in 1963 compared with a six-month
period in 1962.
154. Northern Canada Power Commission. This Commission which was established
in 1948 and operates under the Northern Canada Power Commission Act, 1956, c. 42,
consists of three members appointed by the Governor in Council and has its head office in
Ottawa. The objects of the Commission are to construct and operate electric power
plants and to supply power to mines and other users in the Northwest Territories and
the Yukon Territory and, with the approval of the Governor in Council, in any other
part of Canada. Hydro-electric plants are operated at Snare River, N.W.T., and at Mayo
River and Whitehorse Rapids, Y.T., and thermal-electric stations are in operation at
Fort Resolution, Fort Smith, Fort Simpson, Inuvik, Fort McPherson, Aklavik and
Frobisher Bay, N.W.T., and at Field, B.C.
A hydro-electric power plant on the Taltson River, in the vicinity of Great Slave
Lake, and major additions to the facilities at Frobisher Bay and Inuvik were under
construction at the year-end.
The proprietary equity of the Government of Canada in the Commission at the
close of the past two fiscal years, follows :
March 31
1964 1963
Advances :
Under section 14 of the Act — for investigation of projects $ 50,000 $ 50,000
Under section 15 of the Act — for capital expenditures, including
accrued interest 22,413,000 18,960,000
Equity represented by cost of central heating, water and sewerage and
fire alarm systems at Inuvik, provided by parliamentary appropria-
tion (Northern Affairs and National Resources Vote 119, Special
Appropriation Act, 1963) 7,003,000 7,003,000
Reserve for contingencies pursuant to section 10 of the Act 1,797,000 1,601,000
Reserve for extension, expansion and improvements, equivalent to
expenditures incurred on acquisition of capital assets, as permitted
under section 22 of the Act 297,000 242,000
Surplus 988,000 856,000
$32,548,000 $28,712,000
The Commission acts as agent for the Government of Canada in respect of loans
made under the Atlantic Provinces Power Development Act, 1957-58, c.25, and, in this
capacity, advances were made to the provincial power commissions of Nova Scotia,
Newfoundland and New Brunswick. Outstanding loans totalled $30,429,000 at the
year-end.
114 AUDITOR GENERAL'S REPORT
A summary of the income and expense of the Commission for the past two years
follows :
Year ended March 31
1964 1963
Income —
Sales of power $ 2,883,000 $ 2,798,000
Income arising from construction, maintenance and operation of
facilities for government departments and others 689,000 568,000
Sales of steam and water heat 412,000 365,000
Miscellaneous 171,000 123,000
4,155,000 3,854,000
Expense —
Operating and maintenance 2,252,000 2,135,000
Administrative 244,000 236,000
Interest on advances from the Government of Canada 749,000 757,000
Depreciation (equivalent to repayment of principal of advances from
the Government of Canada) 521,000 498,000
3,766,000 3,626,000
Net income $ 389,000 $ 228,000
Notwithstanding a reduction in rates charged for electric power in certain locations,
there was an increase in income reflecting the continued rise in consumer demand for
electric power, heat and other services.
The power lines and facilities at Aklavik, N.W.T., were purchased by the Depart-
ment of Northern Affairs and National Resources from private parties in 1962 and the
Commission has been operating these facilities for the Department since that time.
Certain inventories included in the items purchased were not recorded in the Commis-
sion's accounts and these stores were counted for the first time in December 1963. They
are now controlled by perpetual inventory records of quantities only and at March 31,
1964 values had not been established.
A complete physical inventory of the central heating, water and sewerage and fire
alarm systems at Inuvik, having an original cost in excess of $7 million, was commenced
in the year under review. On completion, determination of the cost of individual items
will be required and management does not anticipate completion of the project before
March 31, 1966.
155. Northern Ontario Pipe Line Crown Corporation. This Corporation was estab-
lished by the Northern Ontario Pipe Line Crown Corporation Act, 1956, c.10, for the
purpose of constructing the Northern Ontario section of the all-Canadian gas pipe line
and leasing it (subject to approval by the Governor in Council) to Trans-Canada Pipe
Lines Limited, with an option to purchase.
In October 1958 the Corporation entered into an agreement to lease the Northern
Ontario section to Trans-Canada Pipe Lines Limited for a period of 25 years, with an
option to purchase the facilities, exercisable within the period of the lease agreement.
AUDITOR GENERALS REPORT 115
Under the terms of the lease, all expenses of operation, repairs and maintenance, taxes
and other expenses of upkeep were borne by the lessee.
In last year's Report (paragraph 154) it was stated that the lessee had exercised the
purchase option provided for in the agreement and that the sale by the Crown had been
completed on May 29, 1963, following which the Corporation had discharged its liability
to the Government of Canada for outstanding loans and interest accrued thereon. It
was further reported that in accordance with the terms of sale, Trans-Canada Pipe Lines
Limited had assumed responsibility for the negotiation and settlement of all claims then
outstanding and any other claims which might arise in the future.
The capital cost of the Northern Ontario section at the date of sale amounted to
$129,856,000, comprising assets acquired of $119,873,000, and engineering, administrative
and financing expenses of $9,983,000. In accordance with the agreement, the purchase
price paid was $108,373,000, representing the total capital cost less $21,483,000 for
amortization at 3^% per annum, plus interest thereon compounded annually at 3^%
per annum for the period October 22, 1958 to May 29, 1963. With the subsequent
discharge of its liabilities, the Corporation was left with a surplus of $694,000, of which
$690,000 was on deposit with the Receiver General of Canada at the close of the Corpora-
tion's financial year on December 31, 1963.
156. Northern Transportation Company Limited. This Company is a wholly-owned
subsidiary of Eldorado Mining and Refining Limited. Northern Transportation Company
(1947) Limited was incorporated as a private company by letters patent dated November
27, 1947 under the provisions of the Companies Act, 1934, to take over the business
of a predecessor company which had been incorporated under a Province of Alberta
charter in 1934 and whose shares had been acquired when the capital stock of Eldorado
Mining and Refining Limited was expropriated by the Government in 1944. The corporate
name was changed to Northern Transportation Company Limited by supplementary
letters patent dated August 19, 1952.
The Company is authorized by its letters patent to carry on a general transportation
business by land and water throughout Canada and elsewhere. Although the head office
of the Company is in Ottawa, administrative headquarters are in Edmonton and activi-
ties have been almost wholly confined to the Mackenzie River water system and the
western Arctic.
The equity of Eldorado Mining and Refining Limited at December 31, 1963 was
$6,431,000, comprising capital stock of $152,000, surplus of $5,029,000 and a reserve for
insurance of $1,250,000.
At the year-end the Company held $4,450,000 in interest-bearing short term bank
deposits, $3,200,000 as working capital and $1,250,000 as an insurance investment fund. In
our reports to the President and Directors of the Company for the last two years, we have
drawn attention to a recommendation of the Royal Commission on Government Organiza-
tion that all cash surplus to operating requirements of Crown corporations should be placed
on deposit with the Receiver General at a reasonable rate of interest. Section 81 of the
Financial Administration Act provides the authority for such deposits and for the payment
of interest.
116 AUDITOR GENERALS REPORT
The following is a comparative summary of the operating results of the Company
for its last two financial years:
Year ended December 31
1963 1962
Income —
Freight earnings S 2.809,000 $ 2,234,000
Expense —
Operations and maintenance:
Salaries and wages 782,000 647,000
Depreciation 479,000 477,000
Repairs and maintenance 330,000 243,000
Fuels and lubricants 161,000 126,000
Messing expense 129,000 106,000
Other 146,000 144,000
2,027,000 1,743,000
Administrative 245,000 251,000
2,272,000 1,994.000
Net income from operations 537,000 240,000
Miscellaneous income 173,000 142,000
710,000 382,000
Provision for income tax 439,000 250,000
Net income $ 271,000 S 132,000
Freight earnings increased by $575,000 or 25.8% over those of the preceding year. The
additional revenue was derived mainly from shipments to Alaska and the western Arctic
and from increased deliveries to the Beaverlodge mine of Eldorado Mining and Refining
Limited. The general increase in operating and maintenance expenses of $284,000 or
16.3% was the result of the larger number of vessels in operation and increased traffic
volume.
The tonnage hauled to the far north, combined with the higher Arctic tariff rate,
contributed materially to the increased net income for the year, as these movements
involved "long-haul" freight which is more economically handled.
157. Park Steamship Company Limited. This company was incorporated in 1942
under the Companies Act, 1934, for the purpose of supervising the operation of Crown-
owned cargo vessels. The "Park fleet" was sold in 1946-47 and since then the activities
of the company have been confined to the settlement of occasional claims for compensa-
tion by seamen for injuries sustained during previous service. These activities have been
performed by the staff of the Canadian Maritime Commission.
In view of the fact that no claims for compensation had been received during the
past two years, the Audit Office has suggested that the company's charter be surrendered
and we have been informed that action in this direction has commenced.
AUDITOR GENERAL 'S REPORT 117
158. Polymer Corporation Limited and subsidiary companies. Polymer Corporation
Limited was incorporated in 1942 under the Companies Act, 1934, pursuant to the
provisions of section 6 of the Department of Munitions and Supply Act, 1939, c. 3, as
amended. At December 31, 1963, there were three wholly-owned subsidiary companies,
S.A. Polysar Belgium N.V., Polysar Nederland N.V., and Polysar International S.A., as
well as one subsidiary, Polymer Corporation (SAF), in which Polymer held a 95% equity
and a French bank the remaining 5%. Polymer Corporation (SAF) was incorporated
under the laws of France in January 1961 and in the fall of 1962 its special purpose
rubber plant located near Strasbourg commenced operations, although output to the
end of that year was nominal. S.A. Polysar Belgium N.V. was formed under the laws of
Belgium in December 1961 and start-up operations at its butyl rubber plant near Antwerp
commenced late in 1963. Polysar Nederland N.V., which is a holding company, was
incorporated in accordance with the laws of Holland in May 1962. Polysar International
S.A., with headquarters in Fribourg, Switzerland, and branch offices in Vienna, London,
Tokyo and Mexico City, was incorporated under Swiss law in June 1962 for the purpose
of marketing all Polymer products outside of North America except those products which
are both manufactured and sold in France and Belgium. The parent company produces
synthetic rubbers and chemicals at Sarnia where the head office is also situated.
The equity of the Crown in Polymer Corporation Limited and its subsidiary com-
panies at December 31, 1963 amounted to $84,992,000, consisting of capital stock of
$30,000,000 and retained earnings of $54,992,000. During the year under review dividends
of $3,250,000 were paid to the Receiver General, compared with $3,000,000 paid in the
previous year.
The company is participating in synthetic rubber projects in Mexico and South
Africa. At the year-end, its investment as a minority shareholder in the capital stock of
the companies responsible for these projects amounted to $220,000.
Net additions to fixed assets during the year amounted to $17,636,000 and included
the costs of completing the butyl plant in Belgium, the solution polymer plant at Sarnia
and the special purpose rubber plant in France as well as improvements to other facilities.
The managements of the several companies estimate that $14,550,000 will be spent for
the acquisition of capital assets and investment in shares of other companies during the
year ending December 31, 1964.
In computing taxable income for the years 1961, 1962 and 1963 the company took
advantage of capital cost allowances permitted under the Income Tax Act which were
in excess of depreciation charged in the accounts. The effect of this procedure was to
defer payment of income tax totalling $3,785,000 until future years when depreciation
charges may be in excess of capital cost allowances.
To finance construction of the plants in France and Belgium, Polymer Corporation
(SAF) borrowed Fr 35,600,000 ($7,817,200), repayable 1965-1971, and S.A. Polysar
Belgium N.V. negotiated a loan of B.Fr 450,000,000 ($9,700,000), repayable 1969-1977, on
which B.Fr 350,000,000 ($7,567,000) was received by the year-end. With the exception
of Fr 15,280,000 ($3,354,900), the loans are guaranteed by the parent company and all
are repayable in the currency in which they were obtained.
118 AUDITOR GENERAL'S REPORT
The following is a summary of the results of operations of the company and its
subsidiaries for the last two years:
Year ended December 31
1963 1962
Sales $97,460,000 $87,022,000
Other income 346,000 435,000
97,806,000 87,457,000
Cost of sales 76,576,000 63,634,000
Selling, administrative and research expenses 6,688,000 4,774,000
83,264,000 68,408,000
Net income before provision for income tax 14,542,000 19,049,000
Provision for income tax 5,480,000 8,765,000
Net income before minority shareholder's interest 9,062,000 10,284,000
Minority shareholder's interest in subsidiary company 76,000 —
Net income $ 9,138,000 $10,284,000
Sales increased by $10,438,000 due, in part, to the greater volume of rubber available
from new production facilities. Contributing factors to the increases of $12,942,000 in cost
of sales and $1,914,000 in selling, administrative and research expenses included the higher
volume of production and additional costs resulting from the new production facilities,
including, for the first time, a full year's costs of operation of Polymer Corporation (SAF)
and Polysar International S.A., increased research and development activity and higher
interest costs resulting from increased borrowing.
159. The St. Lawrence Seaway Authority. Established by the St. Lawrence Seaway
Authority Act, R.S., c.242 (proclaimed July 1, 1954) the Authority maintains and oper-
ates the Canadian section of the 27-foot waterway between the Port of Montreal and
Lake Erie. The section of the Seaway in the United States is operated by the Saint
Lawrence Seaway Development Corporation. In accordance with an agreement made in
1959 between Canada and the United States, revenues from tolls are divided between
the two Seaway entities in proportion to their annual costs of operation and maintenance,
interest charges and repayment of loans. The Authority also operates non-toll canals at
Lachine, Cornwall and Sault Ste. Marie, the net operating cost being provided for by
annual parliamentary appropriations.
The Authority is a corporation consisting of a President and two other Members
as provided by the Act. Its head office is at Ottawa, with operating headquarters at
Cornwall and regional headquarters at St. Lambert and St. Catharines.
AUDITOR GENERALS REPORT 119
The Crown's equity at December 31, 1963 is shown on the Authority's balance sheet
as follows:
Capital assets transferred from Department of Transport (including Welland
Ship Canal at a value of $130,717,000) $ 180,564,000
Loans under section 25 of the Act 341,500,000
Temporary loans under section 26 of the Act 8,000,000
Interest on loans — deferred 66,261 ,000
596,325,000
Deduct : Deficit 51,625,000
$ 544,700,000
The following is a summary of the income and expense of the Authority for its
past two financial years:
Year ended December 31
1963 1962
Income —
Tolls $10,730,000 $ 9,556,000
Net income from operation of Cornwall-Rooseveltown international
bridge 193,000 121,000
Other 1,122,000 1,039,000
12.045,000 10,716,000
Expense —
Operation and maintenance 6,231,000 5,626,000
Headquarters administration 1,207,000 1,290,000
Regional administration 700,000 713,000
Engineering 577,000 558,000
8,715,000 8,187,000
Less:
Portion of administration and engineering expense applicable to
non-toll canals or allocated to other accounts 745,000 816,000
7,970,000 7,371,000
Net operating income before providing for interest and for replacement
of machinery and equipment 4,075,000 3,345,000
Interest on loans from the Government of Canada 16,803,000 15,397,000
Interest on contractors' claims and other accounts 1,000 164,000
Provision for replacement of machinery and equipment 961,000 888,000
17,765,000 16,449,000
Net loss $13,690,000 $13,104,000
Tolls for the transit of the Welland Canal were suspended by the Government in
July, 1962. The resulting loss in revenue for 1963 was estimated at $1,810,000.
120 AUDITOR GEISERAUS REPORT
The extent by which revenues in 1963 fell short of meeting expenses in each of the
two sections of the waterway and of the North Channel bridge is shown in the following
summary :
St. Lawrence North
River Welland Channel
Section Canal Bridge Total
Tolls $10,730,000 $ $ $10,730,000
Other income 342,000 780,000 193,000 1,315,000
11,072,000 780,000 193,000 12,045,000
Expenses of operation, maintenance and
administration 3,118,000 4,852,000 7,970,000
Net operating profit (loss) 7,954,000 (4,072,000) 193,000 4,075,000
Interest on loans 14,284,000 2,091,000 428,000 16,803,000
Interest— other 1,000 1,000
Provision for replacement of machinery
and equipment 541,000 410,000 10,000 961,000
14,825,000 2,502,000 438,000 17,765,000
Net loss $ 6,871,000 $ 6,574,000 $ 245,000 $13,690,000
On the St. Lawrence River section the net operating profit of $7,954,000 compares with
profits of $6,200,000 in 1962, $5,893,000 in 1961, $5,178,000 in 1960 and $5,894,000 in
1959. On the Welland Canal, the net operating loss of $4,072,000 compares with losses of
$2,976,000 in 1962, $2,176,000 in 1961, $1,726,000 in 1960 and $633,000 in 1959.
Toll revenues for five full navigation seasons have been substantially less than had
been anticipated by the Canadian and United States tolls committees in 1958, as shown
below :
St. Lawrence River Welland Canal
Estimated Actual Estimated Actual
1959 $9,301,000 $7,105,000 $2,060,000 $1,224,000
1960 10,789,000 7,156,000 2,215,000 1,326,000
1961 12,277,000 8,086,000 2,369,000 1,462,000
1962 13,765,000 8,914,000 2,575,000 642,000*
1963 15,254,000 10,730,000 2,730,000 —
$61,386,000 $41,991,000 $11,949,000 $ 4.654,000
*Tolls for the transit of the Welland Canal were suspended in July 1962.
The Authority and the Saint Lawrence Seaway Development Corporation were to
report to their respective Governments by July 1, 1964 on the adequacy of the toll
structure to provide sufficient revenue to meet their operating costs and financial obliga-
tions. However, the Governments of Canada and the United States agreed, through an
exchange of notes, to defer the date on which the entities are to report from July 1, 1964
to July 1, 1966. The Governments agreed that the joint review of the tariff of tolls is to
be continued and that, at the conclusion of the two-year extension, tolls proposals are
AUDITOR GENERAL'S REPORT 121
to be related as realistically as possible to the financial requirements of the Seaway
entities. In this connection, and assuming that the present financial arrangements which
are noted below are also extended to 1966, it has been estimated that, beginning with
1966, the Authority will require revenues of about $32 million each year for 44 years to
meet operating costs and debt repayments. Tolls and other income in 1963 amounted to
only $12 million.
Section 25 of the St. Lawrence Seaway Authority Act provides that the Minister
of Finance, with the approval of the Governor in Council, may from time to time make
loans to the Authority. Section 13 of the Act, as amended, states that the aggregate of
the amounts so borrowed under the Act and outstanding shall not at any time exceed
$535,000,000. At December 31, 1963 the Authority was indebted to the Government of
Canada in respect of loans and deferred interest in the total amount of $415,761,000,
made up as follows :
Loans under section 25 of the Act $ 341,500,000
Temporary loans under section 26 of the Act 8,000,000
Interest to December 31, 1959— deferred 19,427,000
Interest for the year 1961— deferred 14,289,000
Interest for the year 1962— deferred 15,672,000
Interest for the year 1963 — deferred 16,873,000
$ 415,761,000
Section 16 of the St. Lawrence Seaway Authority Act requires that the tolls shall
be fair and reasonable and designed to provide a revenue sufficient to defray the cost to the
Authority of its operations, which costs shall include (a) payments in respect of interest
on amounts borrowed by the Authority, (6) amounts sufficient to amortize the principal
of amounts so borrowed over a period not exceeding fifty years, and (c) the cost of
operating and maintaining the canals and works under the administration of the
Authority, including all operating costs of the Authority and such reserves as may be
approved by the Minister. Pursuant to these provisions, the original conditions under
which loans were made to the Authority under section 25 of the Act required the pay-
ment of interest only in the first three full years of operation (through the year ending
December 31, 1962) and thereafter payment of annual amounts sufficient to amortize
all loans and interest thereon over a period of 47 years (i.e., by December 31, 2009).
The terms of the Authority's financing arrangements were amended in 1961 and
again in 1963 and the principal amount of loans received to finance construction of the
Seaway, together with interest previously deferred and all other interest now accrued or
accruing up to December 31, 1964, is now to be repaid, together with current interest
thereon, in 45 equal annual instalments commencing December 31, 1965.
In accordance with these financial arrangements, the operations for 1963 have been
charged with interest amounting to $16,803,000 (an additional amount of $70,000 was
included in construction costs) but this interest has not been paid and is included in the
balance sheet as part of the Proprietary Equity of the Government of Canada. There was
no charge to the year's operations with respect to amortization of the principal of the
amounts borrowed.
122 AUDITOR GENERAL'S REPORT
The costs of operating and maintaining the canals and works under the administra-
tion of the Authority are defined in paragraph (c) of section 16 as including all
operating costs of the Authority and such reserves as may be approved by the Minister.
The Authority is of the opinion that it is not necessary to include depreciation as an
element of operating and maintenance costs and that the amortization over the 50 year
period of the principal of the amounts borrowed, together with interest as required by
subsections (a) and (b), and provision for replacement of machinery and equipment as
mentioned below, meets the requirements of the Act. Accordingly no provision for
depreciation has been included in the costs for the year under review.
Provision has been made during the year toward the cost of replacing machinery and
equipment, including locks, bridge and building machinery and equipment, in the amount
of $961,000. The reserve for replacement of machinery and equipment, as thus augmented,
amounted to $4,254,000 at December 31, 1963. No provision has been made in the accounts
for the replacement of buildings, lock gates and lock and bridge structures. The Authority
considers that these Seaway works can be maintained in working condition at all times
under its maintenance program.
By amendment to the St. Lawrence Seaway Authority Act in December 1963, the
borrowing power of the Authority was increased from $345,000,000 to $535,000,000 in
order to provide $180,000,000 for the twinning of the Welland Canal locks and $10,000,000
to enable the Authority to pay a claim of the Canadian National Railways for $11,753,000
in connection with the Victoria Bridge diversion. As noted in paragraph 158 of our 1963
Report, the Governor in Council had determined that the Authority was responsible for
the cost of the diversion but not for the interest portion of the Railway's claim. Interest
amounting to $2,816,000 was paid by the Department of Transport as a charge to;
Vote 108e.
The following table summarizes the expense, income and capital expenditures
relating to the non-toll canals operated or administered by the Authority for the past
two years :
Year ended December 31
1963 1962
Expense —
Operation and maintenance $ 3,498,000 $ 2,487,000
Portion of Authority's administration and engineering expense ap-
plicable to non-toll canals 462,000 374.000
3,960.000 2,861,000
Income from rentals, wharfage, etc 559,000 601.000
Operating deficit 3,401.000 2,260.000
Capital expenditures 164,000 76.000
Operating deficit and capital expenditures (recovered from par-
liamentary appropriations) $ 3,565.000 $ 2,336,000
AUDITOR GENERAL'S REPORT 123
The increase of $1,099,000 in expense for 1963 is attributable mainly to special grants
of $473,000 to municipalities which have assumed responsibility for part of the Welland
Feeder Canal that has not been used for navigational requirements since 1924 and to
costs of $508,000 to repair two bridges over the Lachine Canal.
160. The Seaway International Bridge Corporation, Ltd. This Corporation was
incorporated in 1962 under the Companies Act, pursuant to section 24A of the St.
Lawrence Seaway Authority Act, as a subsidiary of The St. Lawrence Seaway Authority
for the purpose of operating and managing the international toll bridge between Cornwall,
Ontario, and Rooseveltown, New York, on behalf of the owners, The St. Lawrence Seaway
Authority and the Saint Lawrence Seaway Development Corporation (a United States
Government corporation). The Seaway entities have an equal interest in the assets of the
Corporation and each has four representatives on the Board of Directors.
Under the terms of the bridge operating agreement between the Authority and the
Saint Lawrence Seaway Development Corporation the annual income from operation of
the bridge system, after payment of operating expenses, is to be applied first towards the
amortization of the cost of the North Channel bridge, together with interest, after which
the balance of the income is to be divided equally between the Seaway entities.
The Seaway International Bridge Corporation, Ltd. commenced operations on
January 1, 1963. Previously the international bridge had been operated by the Cornwall
International Bridge Company Limited to July 2, 1962 and by The St. Lawrence Seaway
Authority from July 3, 1962 to December 31, 1962. The following is a summary of the
Bridge Corporation's operations for the year ended December 31, 1963:
Income —
Bridge tolls $ 367,000
Other 20,000
387,000
Expense —
Salaries, wages and employee benefits 68,000
Maintenance and repairs 60,000
Advertising 14,000
Rental of toll collection machines 13,000
Grant in lieu of municipal taxes 11,000
Other 28,000
194,000
Balance of net income transferred to The St. Lawrence Seaway Authority $ 193,000
The amount of $193,000 was transferred to The St. Lawrence Seaway Authority to be
applied towards the amortization of the cost of the North Channel bridge together with
interest thereon, leaving an unamortized balance of $8,873,000 at December 31, 1963.
It will be noted by reference to paragraph 159 that the amount transferred did not cover
the interest on the indebtedness with respect to the North Channel bridge which amounted
o $428,000 during the year under review.
95480—9
124 AUDITOR GEJSERAVS REPORT
Departmental Operating Activities
161. In our Reports for several successive years it has been pointed out that although
the Financial Administration Act is specific as to the financial statements to be prepared
by Crown corporations, there is no statutory direction regarding the preparation of
appropriate financial statements by departments engaged in trading or servicing activi-
ties. In general, the practice has been to confine reporting to the inclusion of the revenue
from such activities in the Public Accounts among the other items of revenue, while the
expenditure reporting has been associated with the relevant parliamentary appropri-
ations. In addition, where statutory revolving funds are used to acquire materials, etc.,
statements summarizing the transactions in the revolving fund accounts are also included
in the Public Accounts.
Since 1960 we have expressed the view that Parliament should be given a clearer
understanding of the actual financial results of the individual departmental trading and
servicing activities. We have pointed out how, without necessarily disturbing the basis
of reporting presently followed, consideration could be given to the inclusion in the
Public Accounts of financial statements for the various activities drawn up to show the
overall results of operations in a clear, concise manner. The statements contemplated
would be on the accrual basis and include charges for amortization of building and equip-
ment costs, interest on funds employed, services provided by other departments, etc.
The form of presentation would permit a reconciliation between the operating results on
this basis and those recorded on the cash basis. Balance sheets could also be prepared
which would indicate the value of the assets employed by and the indebtedness of the
activities at the year-end. If statements of this type were produced the Audit Office
would be prepared to examine and certify them.
This view was supported by the Public Accounts Committee in its Fifth Report 1961
when the Committee stated that it would be desirable, in order that members have a
clear understanding of the true financial results of departmental trading and servicing
activities, were overall financial statements included in the Public Accounts, provided
that this would not involve undue cost or staff increases. This belief was reiterated by
the Committee in its Fourth Report 1963 and the Auditor General was requested "to
continue to keep the development of this objective under close surveillance and to report
thereon to the Committee in due course" (see Appendix 1, item 2).
It should also be noted that the Royal Commission on Government Organization in
its reports published in 1962, in commenting on the inadequacies of the existing informa-
tion on departmental operating activities, recommended the development of more infor-
mative financial statements covering these activities as an aid to effective management.
The work entailed in preparing such statements does not have to be elaborate or
extensive. As part of its comprehensive audit approach, the Audit Office seeks to assist
departments, Crown corporations and other agencies interested in developing accurate
and effective financial statements showing their operating activities. It does so not only
to assist in the development of more effective financial information for Parliament in the
AUDITOR GE1SER4US REPORT 125
Public Accounts, but also to help the departmental managements in developing more
effective tools and yardsticks with which to control their costs of operation. It will be
seen from the details contained in the following paragraphs how several of the larger
departments and agencies involved in trading or servicing activities have already reached
or are progressing toward this objective.
The wider use of accurate periodic comparative statements of this type is essential
if departments and agencies at all levels are to exercise an effective scrutiny and control
of their costs. In our opinion, greater progress could be made toward this objective were
the program to receive more active encouragement and support from top management.
162. Agricultural Products Board. This Board operates under the authority of the
Agricultural Products Board Act, R.S., c. 4, and consists of a chairman and two other
members appointed by the Governor in Council. The Act empowers the Board, subject
to approval of the Governor in Council and under the direction of the Minister of
Agriculture, to buy, sell, or import, and to store, transport or process agricultural
products. The Agricultural Products Board Account was established in the Consolidated
Revenue Fund in accordance with section 5 of the Act and all financial trading trans-
actions of the Board are recorded in this Account. The Board's activities are administered
by personnel of the Department of Agriculture and the members of the Board also serve
on the Agricultural Stabilization Board.
A summary of the results of operations for the years ended March 31, 1964 and
1963 follows:
Year ended March 31
1964 1963
Sales —
Dry skim milk
$ 2,088,000
$ 1,212,000
Cost of sales —
1,195 000
Purchases
2 240 000
2 499 000
Storage
78,000
209 000
Less: Inventory, March 31
3,513,000
453,000
2,708,000
1,195,000
3,060,000
1,513,000
972 000
301 000
Freight, cartage, handling, etc
32,000
205 000
Dry skim milk donated to charitable
lentary appropriation , ,
364,000
Loss for the year, provided by parlian
$ 1,004,000
$ 870,000
95480—95
126 AUDITOR GENERAL'S REPORT
In addition to the loss of $1,004,000 for 1963-64 charged to Department of Agriculture
Vote 173e, Appropriation Act No. 2, 1964, a total of $87,000 should be taken into
consideration for the estimated cost of administrative and accounting services of $5,000
supplied by government departments and for interest of $82,000 on funds employed.
Only one agricultural product, first grade dry skim milk, was bought and sold during
the last two years. During the year under review, the Board purchased 3,951,000 pounds
of dry skim milk and sold for export 13,454,000 pounds including 8,853,000 pounds sold
to the Department of External Affairs for donations to other countries. Donations
of dry skim milk recorded as a charge to Department of Agriculture Vote 164 for the
year ended March 31, 1963 were the subject of a comment in our 1963 Report (paragraph
48). The Board also purchased 16,411,000 pounds of dry skim milk from exporters at
eleven cents per pound and resold the product to the same exporters at seven cents
per pound without the Board taking possession. Payments of the four cent differential,
aggregating $656,440, were made on presentation of the relative export documents.
At March 31, 1964 the Board held 3,854,000 pounds of dry skim milk recorded at a
cost of $453,000 compared with 13,358,000 pounds at a cost of $1,195,000 at the preceding
year-end.
163. Agricultural Stabilization Board. The Agricultural Stabilization Board was
established by the Agricultural Stabilization Act, 1957-58, c. 22, and has the responsibility
of stabilizing prices of agricultural commodities at levels bearing a fair relationship to
their cost of production. Stabilizing measures take the form of either the purchase of
commodities at prescribed prices, or payment to producers of amounts by which pre-
scribed prices exceed those determined by the Board to be the average prices at which
commodities are currently being sold, or payments to processors for the benefit of
producers. Pursuant to the Act, the Agricultural Commodities Stabilization Account was
established in the Consolidated Revenue Fund and finances the activities of the Board,
except for administrative expenses which are met through annual parliamentary
appropriations.
In response to the recommendation of the Public Accounts Committee in its Fifth
Report 1961, overall financial statements, including the estimated cost of major services
provided without charge by government departments, were prepared by the Agricultural
Stabilization Board for examination and certification by the Audit Office.
The proprietary equity of the Government of Canada at the year-end of $61,399,O0C
was represented by inventories, at estimated market value, consisting of 146.730.00C
pounds of butter, $60,091,000, and 4,359,000 pounds of pork, $1,334,000, offset in part
by a liability for customers' advances.
The inventory of butter reflects a decrease of 25.2 million pounds from the 171.1
million pounds held on March 31, 1963. The inventory of pork declined by 10.3 millioi
pounds during the year, of which 5.6 million pounds represented sales to the Departmen
of External Affairs for donations to other countries. The decline in inventories was due t<
accelerated steps taken to dispose of butter oil and the policy adopted of makin;
stabilization payments instead of engaging in purchase-sale programs.
AUDITOR GENERAL'S REPORT
127
The results of the Board's activities for the year ended March 31, 1964 are sum-
marized as follows:
Trading Operations —
Cost of products sold $ 92,058,000
Revenue from sales 66,620,000
25,438,000
Net loss on sales
Reduction in valuation of year-end inventories of butter by
148,496,000 and pork products by $2,349,000 to estimated market
value 50,845,000
Cost of products destroyed by fire 5,032,000
Net loss on trading operations
— by commodities —
Sales Cost of sales
Net loss
Butter
$ 57,292,000
$ 130,898,000
9,022,000
7,744,000
271,000
$ 73,606,000
Pork
Cheese
Dried skim
2,255,000
6,966,000
milk 107,000
6,767,000
778,000
164,000
$ 66,620,000
$ 147,935,000
$ 81,315,000
Deficiency Payments —
Wool 727,000
Honey 76,000
Other 11,000
Payments for Stabilization of Prices —
Butterfat content of milk and cream 35,351,000
Milk used for cheddar cheese 4,283,000
Dried casein and caseinates 1,865,000
Milk 1,162,000
Estimated cost of major services provided without charge by
government departments —
Interest on working capital 8,761,000
Administration 503,000
Accounting and cheque issue services 176,000
Accommodation 33,000
Contributions to Public Service Superannuation Account 16,000
Carrying of franked mail 7,000
Employee surgical-medical insurance premiums 1,000
Total loss
$ 81,315,000
814,000
42,661,000
9,497,000
$ 134,287,000
The loss for the year was met to the extent of $122,235,000 by funds provided by
)epartment of Agriculture Vote 172e, Appropriation Act No. 2, 1964, and to the extent
if $9,497,000 by major services provided without charge by government departments,
fhe balance of $2,555,000 was deducted from the proprietary equity of the Government
I Canada on the balance sheet of the Board.
128 AUDITOR GENERAL'S REPORT
Stocks of butter and pork products were valued for the first time at estimated
market value at the close of the year which resulted in a loss of $50,845,000. In addition,
a warehouse in which certain products (mainly butter) were stored was destroyed by fire
which resulted in a loss of $5,032,000. Both losses have been charged to trading operations
as shown above.
The loss resulting from this warehouse fire was absorbed because it is the policy of
the government not to carry fire insurance. We suggest that it would provide useful
additional information if a statement of losses by accidental destruction of or damage to
assets, which in accordance with this policy are not insured, were prepared for inclusion
in the Public Accounts.
164. Airport operations. The capital investment of the Department of Transport in
airports as at March 31, 1964 was $605,596,000 compared with $579,085,000 at the same
date in the preceding year, a net increase of $26,511,000 for the year under review.
The revenue from civil aviation airport operations for the year ended March 31, 1964
amounted to $16,971,000 compared with $15,519,000 in the preceding year. Details of this
revenue, together with comparable figures for the preceding year, are as follows :
Year ended March 31
1964 1963
Aircraft landing fees —
Domestic $ 3,609.000 $ 3.235,000
Trans-oceanic 3,478.000 3,074.000
Trans-border 992,000 753,000
Other 15,000 23,000
8,094,000 7,085.000
Rentals —
Office, shop and garage space 1,425,000 1,239,000
Living quarters 361,000 386,000
Hangar 183,000 197,000
Other 1,036,000 1,077,000
3,005,000 2,899,000
Concessions —
Gasoline and oil 1,927,000 1,881,000
Other 2,200,000 1,824,000
4,127,000 3,705,000
Miscellaneous revenue 1,745,000 1,830,000
Total revenue $16,971,000 $15,519,000
The parliamentary appropriation for "Airports and Other Ground Services — Opera
tion and Maintenance" (Transport Vote 145) was charged with expenditures totalling
$20,281,000 for the year 1963-64, an increase of $526,000 over the corresponding figure o:
$19,755,000 for the preceding year.
AUDITOR GENERAL'S REPORT 129
The excess of expenditure (excluding new construction) on airways and airports
over the revenue received, as reflected in the Department of Transport section of the
1963-64 Public Accounts, was therefore $3,310,000, a decrease of $926,000 from the
preceding year's figure of $4,236,000.
The results thus recorded are on a cash basis and do not include any provision for
amortization of airport construction costs, interest on funds employed or other costs such
as a portion of the expenditure charged as air services administration, which would have to
be taken into consideration if the actual net costs of civil aviation airport operations
were to be determined. The Department does, however, maintain accounts on an accrual
basis for its operations at 17 of the major airports, which together account for approxi-
mately 88% of the revenue from civil aviation airport operations, and prepares therefrom
periodic financial statements for management purposes. A consolidation of these state-
ments, which includes provision for depreciation of civil aviation facilities (though not
the other costs referred to), for the year ended March 31, 1964 is given as an appendix to
the Department's section of the Public Accounts.
165. Board of Grain Commissioners for Canada. This Board operates under the
authority of the Canada Grain Act, R.S., c.25, and is composed of a chief commissioner
and two other commissioners appointed by the Governor in Council. The Board has
jurisdiction to inquire into any matter relating to grading, weighing and storage of grain,
unfair or discriminatory operation of any elevator, and any other matter arising out of
the performance of the duties of the Board.
The following is a comparative summary of the results of operations for the past two
fiscal years :
Year ended March 31
Expenditure —
Salaries, allowances, etc $ 4.496,000
Rent
Contributions to Public Service Superannuation Account
Travel
Printing and stationery
Other
1064
1963
4.496,000
$ 4,258,000
211,000
206,000
249,000
237.000
158,000
122,000
54,000
58,000
244,000
232,000
5,412,000 5,113,000
Revenue —
Inspection 2,034,000 1,584,000
Weighing 1,005,000 794,000
Registrations and cancellations 58,000 44,000
Licences 28,000 29,000
Sundry 4,000 2,000
3,129,000 2,453,000
Excess of expenditure over revenue $ 2,283,000 $ 2,660,000
130 AUDITOR GENERAL'S REPORT
The increase of $238,000 in salaries, allowances, etc., is mainly due to the increased
volume of grain movement during the year over the previous year. The expenditures
of the Board for the first time include the estimated costs of $277,000 for accommodation,
contributions to the Public Service Superannuation Account and other services provided
by government departments.
Despite the increase in revenue during the year, the Board sustained a deficit of
almost $2.3 million. Costs of the various services provided by the Board have increased
substantially, while the fees charged for weighing services have not been revised since
1920 and for inspection services since 1949. In our previous Reports reference has been
made to this situation and to a recommendation made in 1961 by the Public Accounts
Committee that "steps be taken to bring revenues and expenditures into balance". We
were advised by the Deputy Minister of Agriculture in May 1964 "that effective August 1,
1965, the Board of Grain Commissioners proposes to amend its regulations to increase
inspection and weighing fees by 50%, in order to enable the Board to meet expenditures
in providing these services". In setting the implementation date at August 1, 1965, the
Board's decision was based on the premise that it was not equitable to impose changes in
fees which would affect net returns on contracts already entered into by the Wheat Board
under the international agreements then existing (see Appendix 1, item 15).
166. Canadian Government Elevators. The Canadian Government Elevators, man-
aged and operated by the Board of Grain Commissioners for Canada under section 166
of the Canada Grain Act, R.S., c.25, and Order in Council P.C. 1372 of August 19, 1925,
comprise six elevators located at Moose Jaw, Saskatoon, Calgary, Edmonton, Lethbridge
and Prince Rupert.
The proprietary equity of the Government of Canada in the elevators at March 31,
1964 was $10,803,000, represented by fixed assets costing $10,404,000 acquired out of
funds provided through parliamentary appropriations, together with a surplus of $399,000.
The following is a summary of the results of operations for the year under review
with the comparable amounts for the preceding year:
Year ended March 31
Expenditure —
Salaries and wages
Grants in lieu of taxes
Maintenance — buildings, plant and equipment
Power
Head office expenses
Contributions to Public Service Superannuation Account
Employees' surgical-medical insurance and compensation
Rent
Other
1964
1963
$ 886,000
8 785,000
195,000
112,000
149,000
258,000
84,000
65,000
59,000
62,000
58.000
51,000
33,000
29,000
10,000
10,000
35,000
32,000
1,509,000
1,404,000
AUDITOR GENERAL'S REPORT 131
Year ended March 31
1964 1963
Revenue —
Storage 558,000 822,000
Elevation 343,000 157,000
Cleaning 91,000 35,000
Screenings 75,000 —
Drying 17,000 11,000
Elevator rental 26,000
1,084,000 1,051,000
Operating loss 425,000 353,000
Deduct:
Miscellaneous revenue 20,000 12,000
Credits for estimated cost of services provided without charge by
government departments 101 ,000 90,000
121,000 102,000
Net loss, without providing for depreciation $ 304,000 $ 251,000
The movement of large quantities of wheat as a result of the sales agreement with
China required the employment of more casual employees than is normal which, for the
most part, explains the increase in salaries and wages. Grants in lieu of taxes were adjusted
retroactively with the result that an amount of $30,000 was added to the annual grant
and a further $53,000 was paid with respect to the two previous years. As noted in
previous years' Reports, expenditures do not include amortization of elevator construc-
tion costs. On the other hand, for the first time, the expenditures include the estimated
cost of $101,000 for accommodation, contributions to the Public Service Superannuation
Account and other employee benefits provided without charge by government depart-
ments.
During the year, 15,531,000 bushels of grain were received by the elevators compared
with 6,252,000 in the previous year, which explains the increase in revenue from elevation,
drying, cleaning, and screenings.
The rapid turnover of wheat during the year, accompanied by shipments from the
elevators at Moose Jaw and Saskatoon, without replenishment of stocks, mainly accounts
for the decrease in storage revenue. No elevator rental was received during the year
because the elevator at Port Arthur had been sold in 1962.
A loss of $130,000 by the Lethbridge elevator was its nineteenth consecutive annual
loss. The accumulated deficits during this period have amounted to $821,000.
167. National Film Board. This Board was established in 1939 by the National Film
Act, now R.S., c.185, for the purpose of promoting the production and distribution of
films in the national interest. Section 18 of the Act provides for the establishment of the
National Film Board Operating Account in the Consolidated Revenue Fund. The Account
is credited with amounts provided by annual parliamentary appropriations for "Admin-
istration, Production and Distribution of Films and Other Visual Materials" (National
95480—10
132 AUDITOR GENERAL'S REPORT
Film Board Vote 1), amounts transferred from appropriations of government depart-
ments in respect of work undertaken for them, and income arising from the sale and
rental of films and other visual materials. The Account is charged with all expenditures
made by the Board, other than those for the acquisition of capital equipment which are
charged to a separate appropriation. However, National Film Board Vote L30, Appropri-
ation Act No. 5, 1963, authorizes charges to the Account for the acquisition of capital
equipment for the Canadian Government Photo Centre which was established during
the year for the purpose of co-ordinating the government's still photographic operations
in Ottawa.
The equity of the Crown in the Board at March 31, 1964 was $1,820,000, consisting
of the balance of $451,000 in the National Film Board Operating Account, including
$29,000 for Canadian Government Photo Centre equipment, and an investment of
$1,369,000 represented by the depreciated value of equipment transferred to the Board
at its inception or purchased out of funds provided through parliamentary appropriations
for the purchase of capital equipment, less disposals.
As provided by the Act, the Board maintains an accounting system on the accrual
basis in addition to the accounts maintained by the Comptroller of the Treasury on the
cash basis. The following is a summary of the results of the Board's operations for the
year, compared with those of the preceding year:
Year ended March 31
1964 1963
Expense —
Production of films and other visual materials $ 3,068,000 $ 2.975,000
Distribution of films 2,413,000 2,313,000
Cost of production of films and other visual materials for government
departments and others 1,631,000 1,557,000
Estimated cost of major services provided without charge by govern-
ment departments 1,099,000 1,083.000
Administration and general services 963,000 900,000
Depreciation on equipment 349,000 342,000
9,523,000 9,170,000
Income —
Sales of films and other visual materials 1,844,000 1.740,000
Rentals and royalties 757,000 585,000
Miscellaneous 29,000 25,000
2,630,000 2,350,000
Net expense S 6,893,000 $ 6,820,000
Net expense provided by:
Parliamentary appropriations $ 5,445,000 S 5,395.000
Major services provided without charge by government departments 1,099,000 1,083,000
Depreciation 349,000 342,000
$ 6,893,000 $ 6,820,000
AUDITOR GEISERAUS REPORT 133
The Board's statement of income and expense for the year ended March 31, 1964
included, for the first time, the estimated costs of accommodation, contributions to the
Public Service Superannuation Account, accounting and other services provided by
government departments and depreciation on equipment. In the statements for the
previous two years, this information was provided by means of a note to the Board's
financial statements. The comparative statement of income and expense for the year
ended March 31, 1963, as summarized above, was adjusted to incorporate these charges.
168. Post Office activities. The following is a summary of the Post Office transactions
as recorded in the Post Office section of Volume II of the Public Accounts for the year
ended March 31, 1964 in comparison with the corresponding amounts for the preceding
fiscal year :
Year ended March 31
1964 1963
Gross postal revenue $ 235,808,000 $ 222,300,000
Less : Expenses paid from revenue 35,091 ,000 29,528,000
Net postal revenue 200,717,000 192,772,000
Miscellaneous revenue 57,000 59,000
200,774,000 192,831,000
Deduct: Expenditures from parliamentary appropriations —
Operations 135,609,000 119,992,000
Transportation 65,952 000 63,935,000
Administrative, financial services, etc 5,334,000 5,417,000
206,895,000 189,344,000
Excess of expenditure over revenue $ 6,121,000 $ (3,487,000)
This recorded excess of expenditure over revenue of $6,121,000 did not, however, take
into consideration estimated costs of services provided by other departments, including
accommodation provided by the Department of Public Works estimated at $25,859,000,
contributions to the Public Service Superannuation Account and to employee surgical-
medical insurance premiums by the Department of Finance estimated at $8,570,000,
accounting and cheque issue services provided by the Comptroller of the Treasury,
$587,000, and employee compensation payments by the Department of Labour, $231,000,
a grand total of $35,247,000. Neither were credits for mail franked by and sent to govern-
ment departments and Members of Parliament, estimated at $3,860,000, included. Taking
these into account the operating deficit would be $37,508,000 rather than $6,121,000
I as shown.
169. Public Printing and Stationery activities. Under the Public Printing and
Stationery Act, R.S., c. 226, the Department of Public Printing and Stationery was
charged with the execution of printing, lithographing or work of like nature and the
procurement and distribution of paper, books and other articles of stationery required
95480—104
134 AUDITOR CEISERAL'S REPORT
by the Senate, the House of Commons and the various government departments. The
Department was also made responsible for the sale of all books or publications issued by
order of either or both Houses of Parliament or by any government department. The
expenditures are provided for through the medium of the Queen's Printer's Advance
(a statutory working capital advance) and by annual parliamentary appropriations.
During the year under review the Governor in Council, pursuant to the Public
Service Rearrangement and Transfer of Duties Act, transferred to the Department of
Defence Production the control and supervision of the Procurement, Purchasing and
Stores Branch, the Production Branch, the Outside Printing Production Branch, and the
supporting administrative and financial services contained in a number of branches of the
Department of Public Printing and Stationery. Funds in respect of the transferred
activities provided through appropriations or by statute were also transferred to the
Department of Defence Production. Responsibility for the procurement of print for books
and publications remains with the Department of Public Printing and Stationery.
The basic expenses of the operations transferred to the Department of Defence
Production are charged to the Queen's Printer's Advance under section 37 of the Public
Printing and Stationery Act. The Advance is credited with the value of printing work
executed for and charged at "factory" cost to the various departments, and also for the
value of stationery supplied and charged to them at "purchase" cost. The Act provides
that the aggregate amount of the charges to the Advance after deducting therefrom any
amounts due to it shall not exceed $4 million at any time. As at March 31, 1964 the
balance of the Advance was $5,759,000 and the accounts receivable totalled $3,772,000, so!
that the effective balance for the purposes of the Act was $1,987,000, a decrease of $372,000
from the corresponding figure of $2,359,000 at the end of the preceding year.
The following summary shows the operating results of the Queen's Printer's Advance
for the year ended March 31, 1964 together with comparable figures for the preceding
year:
Year ended March 31
1964 1963
Revenue $19,639,000 $18,990,000
Expenditure —
Direct materials 12,010,000 11,954,000
Direct labour 4,244,000 3,857.000
Other factory expenses 3,085,000 3,074,000
Work sub-contracted 196,000 373,000
Increase in inventories (163,000) (192,000)
19,372 000 19,066.000
267,000 (76,000)
Discounts earned, etc 9,000 9,000
Excess of revenue over expenditure $ 276,000 $ (67,000)
AUDITOR GENERAL'S REPORT 135
The expenditure shown above does not include the value of services and facilities
including light, power, heat, amortization of cost of buildings and equipment, etc.,
provided free of charge by other government departments and through the medium of
the Department's own appropriations and those of the Department of Defence Production.
In addition to the expenditures recorded through the Queen's Printer's Advance,
other expenditures were charged to a number of appropriations. As mentioned above,
in some instances outlay was made by the Department of Defence Production through
funds transferred. In order that a comparison of the total expenditures for the year
under review may be made with those for the preceding year, the expenditures made by
that Department have been consolidated with those of the Department of Public
Printing and Stationery as follows:
Year ended March 31
1964 1963
Departmental administration —
Department of Defence Production $ 636,000
Department of Public Printing and Stationery 141,000
$ 777,000 $ 771,000
Purchasing, stationery and stores —
Department of Defence Production (largely for salaries and wages
of procurement and stationery stores personnel and repairs to
office equipment)
Distribution of official documents —
Department of Public Printing and Stationery
Printing and binding official documents for sale and distribution to
departments and the public — Department of Public Printing and
Stationery
Printing of Canada Gazette —
Department of Public Printing and Stationery
Printing and binding the annual Statutes —
Department of Public Printing and Stationery
Plant equipment and replacements —
Department of Defence Production
Reimbursement of the Queen's Printer's Advance for the value of
stores which have become obsolete, unserviceable, lost or destroyed
For the year ended March 31, 1964, revenue totalled $1,864,000, most of which
resulted from sales of publications to the general public. This figure excludes the surplus
of $156,000 in the Queen's Printer's Advance — representing the excess of revenue over
expenditure for the year ended March 31, 1964, $276,000, less the accumulated deficit of
$120,000 for the two preceding years — which was transferred to the Receiver General in
May 1964.
170. Royal Canadian Mint. The Royal Canadian Mint operates under Part II of the
Currency, Mint and Exchange Fund Act, R.S., c. 315, and provides "facilities for making
coins of the currency of Canada, and for melting, assaying and refining gold".
Revolving fund accounts are maintained for the recording of transactions in gold,
silver and other metals acquired by the Mint for the purpose of its operations. The
1,228,000
1,201,000
690,000
)
685,000
I
1,126,000
1,012,000
149,000
169,000
40,000
26,000
83,000
p
106,000
I —
7,000
$ 4,093.000
$ 3,977,000
136 AUDITOR GENERAL'S REPORT
following is a summary of the charges and credits to these accounts during the year
under review in comparison with the corresponding amounts for the preceding fiscal year :
Year ended March 31
1964 1963
Inventories at beginning of year $27,212,000 $20,655,000
Add: Purchases during year
Gold 98,296,000 91,020,000
Silver 14,782,000 16,914,000
Other metals 1,675 000 1,408,000
114,753,000 109,342,000
Gold revaluation ( 1,000) 218,000
141,964,000 130.215,000
Deduct : Sales
Gold 96,072.000 91,121,000
Silver coin at face value 20,176,000 15,853,000
Other coin at face value 5,513,000 4,961,000
Silver bullion 86,000 49,000
Sundry 17,000 —
121,864,000 111,984.000
20,100,000 18,231,000
Add: Transfers to revenue
Gain on coinage operations 9,276,000 8,920,000
Gold refining gain 25.000 61,000
9,301,000 8,981,000
Inventories at end of year $29,401,000 $27,212,000
The transfers to revenue of $9,301,000 from the revolving fund accounts and of other
revenue of $1,323,000, making a total of $10,624,000 ($9,706,000 in 1962-63) for the year
ended March 31, 1964, are recorded in the Public Accounts as revenue of the Department
of Finance. Offset against this were expenditures totalling $2,611,000 charged to parlia-
mentary appropriations under the Department of Finance as follows: administration,
operations and maintenance, $2,192,000 ($1,890,000 in 1962-63); and construction or
acquisition of equipment, $419,000 ($62,000 in 1962-63).
The net result of these credits and charges was an excess of revenue over expenditure
of $8,013,000 compared with $7,754,000 in 1962-63, an increase of $259,000. These recorded
results do not, however, take into consideration interest on funds employed or charges for
services provided by other departments including accommodation provided by the Depart-
ment of Public Works, the services of the R.C.M.P., contributions to the Public Service
Superannuation Account, employee surgical-medical insurance premiums and accounting
and cheque issue services by the Department of Finance and employee compensation
payments by the Department of Labour.
In the year under review there was a gain in coinage revenue of $356,000 with a
decrease of $44,000 in sundry revenue. Service fees increased by $606,000 due to an
AUDITOR GENERAL'S REPORT 137
unprecedented increase in the sales of coin sets. Expenditures increased by $659,000 due
mainly to salary increases, and purchase of new equipment.
Special Audits and Examinations
171. In addition to the examinations of departmental accounts and the audits of the
accounts of Crown corporations, already referred to in this Report, the following special
audits and examinations were made by the Audit Office during the year, most of them in
accordance with specific directions contained in various statutes: Army Benevolent Fund
Board, Atlantic Development Board, the Canada Council, the Custodian, Economic
Council of Canada, Exchange Fund Account, Municipal Development and Loan Board,
National Gallery of Canada, National Productivity Council, Public Printing and Sta-
tionery stores, The Queen Elizabeth II Canadian Fund to Aid in Research on the Diseases
of Children, Royal Canadian Mint stocks, Unemployment Insurance Fund and Yukon
Territorial Government.
172. Army Benevolent Fund Board. The accounts of the Board were examined for
the year ended March 31, 1964 pursuant to section 11 of the Army Benevolent Fund Act,
R.S., c. 10, as amended, and the relative report was addressed to the Chairman and
Members of the Army Benevolent Fund Board constituted by the Act, with a copy being
provided to the Minister of Veterans Affairs.
During the year, receipts amounted to $229,000 of which $217,000 was derived from
interest on funds on deposit with the Receiver General and $12,000 from interest
on Government of Canada bonds. Disbursements totalled $462,000 consisting of
$371,000 in grants to or on behalf of World War II veterans and $91,000 for service and
administrative expenses. The latter amount was after deducting a grant of $18,000
provided from an appropriation of the Department of Veterans Affairs and a fee of
$35,000 received from the Canadian Army Welfare Fund for the management of the
financial program of that Fund.
After absorbing the excess of disbursements over receipts in the amount of $233,000,
the balance at credit of the Fund at March 31, 1964 was $5,781,000, represented by
$5,521,000 on deposit with the Receiver General, $256,000 invested in Government of
Canada bonds and $4,000 of accountable advances and prepaid expenses.
173. Atlantic Development Board. This Board was established by the Atlantic
Development Board Act, 1962-63, c.10. Under the provisions of the Act, as amended
(1963, c. 5), the objects of the Board are to inquire into and report to the responsible
i Minister upon programs and projects for fostering the economic growth and development
; of the Atlantic region of Canada, and to consider, report and make recommendations
, to the Minister concerning programs and projects.
Funds for the Board's 1963-64 expenses were provided by a parliamentary appropria-
tion (Secretary of State Vote 40a). Expenditures during the year amounted to $196,000
138 AUDITOR GENERAL'S REPORT
of which $104,000 represented the cost of technical and economic surveys and studies
and $92,000 represented administrative costs.
The amendment to the Act in 1963 authorized the establishment of an Atlantic
Development Fund as a separate account in the Consolidated Revenue Fund for the
purpose of financing or assisting in financing undertakings and the carrying out of pro-
grams and projects that, in the opinion of the Board, will contribute to the growth and
development of the economy of the Atlantic region and for which satisfactory financing
arrangements are not otherwise available, the aggregate payments into the Fund not to
exceed $100 million.
Up to March 31, 1964 no amount had been credited to the Atlantic Development
Fund, but during the year the Cabinet approved recommendations for contributions
totalling $41,100,000 from the Fund to provide capital assistance in the case of two
hydro-electric projects and two fish processing development projects.
174. The Canada Council. The Council was established under the Canada Council
Act, 1957, c.3, "to foster and promote the study and enjoyment of, and the production of
works in, the arts, humanities and social sciences".
A report on the audit of the Council's accounts for the year ended March 31, 1964
was made to the Council and to the Secretary of State of Canada, as required by the Act.
An Endowment Fund of $50 million was established under the Act. The return on
the investments of the Fund is used to meet administrative expenses and other expendi-
ture for purposes of the Act (except for capital assistance grants to universities in respect
of building construction projects which are made from the University Capital Grants
Fund). Permissible expenditures relate to the following in respect of the arts, humanities
and social sciences: grants, scholarships and awards; sponsorship of exhibitions, perform-
ances and publications; exchanges with other countries and organizations or persons
therein of knowledge and information; representation and interpretation of Canadian
arts, humanities and social sciences in other countries; and liaison with the United
Nations Educational, Scientific and Cultural Organization.
The following is a summary of the results of the Endowment Fund operations for
the year ended March 31, 1964, together with comparable figures for the preceding year:
Year ended March 31
1964 1963
Surplus at April 1 $ 83,000 $ 273,000
Income— interest and dividends 3.086.000 3,011,000
3,169,000 3,284,000
Expenditure —
Grants 2,586,000 2,721,000
Canadian National Commission for UNESCO 82,000 78,000
Administrative and other expenses 419,000 402,000
3,087,000 3,201,000
Surplus at March 31 $ 82,000 $ 83,000
AUDITOR GENERAL'S REPORT 139
A University Capital Grants Fund of $50 million was established by the Act in
order that grants could be made to universities and similar institutions of higher learning
by way of capital assistance for building construction projects intended for use in further-
ing the arts, humanities and social sciences. These grants may be paid out of the principal
and accumulated income of the Fund.
The following is a summary of the University Capital Grants Fund transactions for
the year ended March 31, 1964, together with comparable figures for the preceding year:
Year ended March 31
1964 1963
Balance at April 1 $25,944,000 $30,333,000
Add:
Interest earned on investments 1,111,000 1,521,000
Net profit on disposal of securities 270,000 365,000
27,325.000 32,219,000
Deduct:
Authorized grants 15,826,000 6,275,000
Balance at March 31 $11,499,000 $25,944,000
Prior to the year under review, the allocation of interest earned and profits realized
from the investment portfolio of the University Capital Grants Fund was left in
abeyance because of conflicting legal opinions respecting the procedure which should
be followed. In the 1963 Report (paragraph 173) reference was made to a resolu-
tion of the Council in August 1963 that an allocation and distribution be made on
the basis of the 1956 census, using the "hotch-pot" or trust fund approach for the purpose.
Subsequently an allocation was made of interest and profits amounting to $15,130,000
which had accumulated in the Fund from its inception to September 30, 1963 and the
institutions concerned were invited to make applications for their entitlement.
As we continued to regard the method of distribution as not in accordance with sub-
section (2) (6) of section 17 of the Canada Council Act, my report for the year ended
March 31, 1964 was qualified to that extent. On July 28, 1964 the Public Accounts Com-
mittee again examined this matter with the Chairman and members of the Council who
were in attendance. As a result, in its Sixth Report 1964, the Committee recorded the
view that the Council's approach to the matter was a reasonable one, but because of the
conflicting opinions held as to whether the action taken was ultra vires of the Act, recom-
mended that steps be taken to seek amending legislation to provide clear authority for
the Council to use the 1956 census and the "hotch-pot" approach in the distribution of
interest and profits in respect of the University Capital Grants Fund (see Appendix 1,
item 39).
The Council may, under section 20 of the Act, acquire money, securities or other
property by gift, bequest, or otherwise, and may expend, administer or dispose of
them subject to the terms upon which they are made available to the Council. In
February 1963 as a result of accepting a gift, referred to in the 1963 Report (paragraph
173), of approximately $4,250,000 from an anonymous donor, which is payable over the
140 AUDITOR GENERAL'S REPORT
next several years, the Council approved of the preparation of a separate balance sheet,
designated "Special Funds", to account for all moneys or property received pursuant to
section 20. This balance sheet has two sections the first of which records the receipt and
disbursement of comparatively small gifts which are accounted for within the Endowment
Fund. The second section of the balance sheet relates to the following funds from which
only the income may be disbursed for the purposes designated:
1. The amount of $1,079,000 received in March 1963 with respect to the anonymous gift of
$4,250,000, the income from which is to provide fellowship and scholarship grants to
Canadians for advanced study or research in the fields of medicine, science and
engineering at universities, hospitals, research or scientific institutions or other equivalent
or similar institutions in Canada.
2. A gift of $600,000 received from the Molson Foundation in September 1963 to establish
a capital fund referred to as the Molson Prize Fund, the income from which is to be
used for making cash awards of $15,000, normally two in each year, to authors or
creators of works or to persons who have rendered service to Canada in the fields of the
arts, humanities and social sciences which will enrich the cultural or intellectual
heritage of the nation, or make a noteworthy contribution to understanding and
unity among Canadians of French and English descent.
For investment purposes the two funds have been combined and are represented
by one portfolio. The income of $74,000 produced by the investments for the year under
review was allocated to the two funds according to the ratio which each fund, mul-
tiplied by the days held during the year, bore to the total of the two resulting
products. A summary of the operating results for the year ended March 31, 1964 follows:
Surplus at April 1, 1963
Income — interest and dividends
Special
Scholarship
Fund
$
Molson
Prize
Fund
17,000
$
Total
3,000
74,000
$ 3,000
57,000
60,000
17,000
77,000
56,000
1,000
15,000
1,000
71,000
2,000
57,000
16,000
73,000
$ 3,000
$
1,000
$
4,000
Expenditure-
Grants and awards
Administrative expenses
Surplus at March 31, 1964
Although two Molson Prize Fund awards of $15,000 each were made, payment was
conditional upon the Fund producing the necessary income. The item of $15,000 shown
above for the Molson Prize Fund covers the first instalment of $7,500 paid on each
award. The second instalment of the same amount has since been paid.
175. The Custodian. In accordance with Regulation 6 of the Revised Regulations
respecting Trading with the Enemy (1943) as set out in the schedule to the Trading with
the Enemy (Transitional Powers) Act, 1947, c. 24, the Secretary of State is appointed
AUDITOR GENERAL'S REPORT 141
Custodian "to receive, hold, manage, release, dispose of and otherwise deal with all
property which is reported to him, received or controlled by him or vested in him" by
virtue of the Regulations. Formerly the Under-Secretary of State, and now, effective from
May 15, 1964, the Deputy Registrar of Canada acts as the Deputy Custodian. The
Custodian's Office is administered by an Assistant Deputy Custodian in Ottawa. A report
on the audit of the Custodian's accounts for the year ended December 31, 1963 was made
to the Secretary of State.
The book value of the assets vested in the Custodian, which were valued in accordance
with bases explained in an addendum to the statement of assets and liabilities, decreased
by $287,000 to $3,851,000 at December 31, 1963. A transfer of $350,000 to the Minister of
Finance for the War Claims Fund, and releases of assets valued at $265,000 to former
owners or their beneficiaries or other rightful claimants, offset in part by an appreciation
of $339,000 in the value of remaining vested assets, accounted for the greater part of the
decrease.
Under the Regulations referred to above, the Custodian is authorized to charge
against all property investigated, controlled or administered by him, whether it has
vested in him or not, a fee for services rendered not exceeding 2% of the value of the
property including the income therefrom. He is also permitted to employ such part of the
property vested in him or the proceeds therefrom as may be necessary to pay the expenses
incurred in the administration of the Regulations.
All fees and any income received from vested assets which consist of, or are con-
verted into, cash or Government of Canada bonds are credited to the Custodian's
administration account, from which all expenses of the office are paid. As a result, from
September 2, 1939 to December 31, 1963 the Custodian had accumulated a surplus of
$4,573,000 — largely invested in Government of Canada bonds.
The following is a summary of the income and expense of the Custodian for the year
ended December 31, 1963 together with comparable figures for the preceding year:
Year ended December 31
1963 1962
Income —
Fees on assets released from administration $ 9,000 $ 23,000
Interest on investments and bank deposits 206,000 207,000
Other income 9,000 8,000
224,000 238,000
Expense —
Salaries 108,000 110,000
Other expense 11,000 8.000
119,000 118,000
Surplus $ 105,000 $ 120,000
142 AUDITOR GENERAL'S REPORT
A substantial decrease in the value of assets released in 1963 as compared with 1962
contributed to the significant reduction in income from fees on assets released from
administration. The increase of $3,000 for other expense is the result of a decision to
write off the unamortized cost of office furniture and equipment as a charge to 1963
operations — the cost of future acquisitions will be charged as an expense of the year in
which the expenditure is incurred.
176. Economic Council of Canada. The Economic Council of Canada was established
on August 2, 1963 by the Economic Council of Canada Act, 1963, c. 11, which directs the
Council to advise how Canada can achieve the highest possible levels of employment and
efficient production, in order that the country may enjoy a high and consistent rate of
economic growth and that all Canadians may share in rising living standards. With the
coming into effect of the Economic Council of Canada Act, the legislation establishing
the National Productivity Council was repealed and the Economic Council was given
responsibility for carrying on the duties formerly assigned to the National Productivity
Council, namely promoting and expediting advances in productive efficiency in various
aspects of Canadian economic activity. The Economic Council consists of 28 members
appointed by the Governor in Council : a chairman and two directors who serve on a full-
time basis and are remunerated at rates fixed by the Governor in Council and 25 other
members broadly representative of different sectors and groups in the Canadian economy
who serve without remuneration. The head office of the Council is in Ottawa.
Although the Economic Council of Canada came into being in August 1963, the 25
members who serve on a part-time basis were not appointed until December. Accordingly,
activities for the year ended March 31, 1964 were largely confined to the last three months
of the fiscal year. During that period, two meetings were held, office space was obtained
and staff was recruited. The following is a summary of the expenses of the Council for the
period from its establishment on August 2, 1963 to March 31, 1964:
Salaries $ 115.000
Grants to work study schools 23,000
Travel 18,000
Other 14.000
$ 170,000
These expenses were provided to the extent of $165,000 by parliamentary appropriation
and the remaining $5,000 by a transfer from the National Productivity Council under
authority of section 22 of the Economic Council of Canada Act which directs that any
balance standing to the credit of the National Productivity Council after payment by it
of any debts and obligations shall be paid by the National Productivity Council to the
Receiver General to be held and applied toward the payment of expenses of the Economic
Council.
177. Exchange Fund Account. The Exchange Fund Account, first established by the
Exchange Fund Act, 1935, c. 60, and continued by the Foreign Exchange Control Act,
AUDITOR GE1SERAUS REPORT 143
1946, c. 53, now operates under Part III of the Currency, Mint and Exchange Fund Act,
R.S., c. 315. The purpose of the Account is "to aid in the control and protection of the
external value of the Canadian monetary unit".
The accounts of the Exchange Fund for its financial year ended December 31, 1963
were examined pursuant to section 27 of the Currency, Mint and Exchange Fund Act
and the relative report was addressed to the Minister of Finance in accordance with
established practice. The section requires that a special certificate be given annually to
Parliament, and in accordance with that requirement it is now certified that the trans-
actions in connection with the Account for the year ended December 31, 1963 have been
in accordance with the provisions of the Act, and that the records showed truly and
clearly the state of the Account.
The following is a summary of the transactions in the Account for the year ended
December 31, 1963 compared with the transactions in the previous year:
Year ended December 31
1963 1962
Balance at January 1 $ 2,686,227,000 $ 2,162,606.000
Deduct :
Paid into Consolidated Revenue Fund in respect of earnings 35,227,000 32,606.000
2651,000,000 2.130.000,000
Add:
Advances (net) received during the year 38,000,000 521,000,000
Earnings on investments during the year (to be paid into
the Consolidated Revenue Fund) 62,594,000 35,227.000
Balance at December 31 $ 2.751,594,000 $ 2,686 227,000
Represented by:
Canadian dollars $ 78,000 $ 160,000
United States dollars and securities 1,898,188,000 1.941,310,000
Gold 883 500,000 763,169,000
Suspense account 110,000
2,781,876,000 2,704,639,000
Surplus 30,282,000 18,412 000
$ 2,751.594,000 $ 2,686,227,000
It has been the practice in past years to value the holdings at December 31 in terms
of the Canadian dollar at the closing market rate of exchange but this practice was dis-
continued during the year under review in favour of valuing the holdings in terms of the
Canadian dollar at par of exchange. As a result, the United States dollar holdings were
valued at $1.08108 (par) at December 31, 1963 and the surplus account is $366,662
greater than if the market rate of $1.0809 at December 31, 1963 had been used.
It should be noted that the surplus of $30,282,000 at December 31, 1963 would have
been considerably larger at that date if losses accumulated in the Account, representing
a cost of exchange management since its inception, had been written off. In our 1962
Report and in paragraph 175 of the 1963 Report we recommended that provision be made
144 AUDITOR GETSERAVS REPORT
for transferring annually to the Consolidated Revenue Fund the realized profits or losses
from trading operations and revaluations of holdings of gold and foreign currencies.
The Minister of Finance in a statement to the Public Accounts Committee (Minutes
of Proceedings No. 16, July 21, 1964) concluded as follows:
"It remains to deal with the request of the Committee for comment on the desirability
of writing off the deficit or surplus and of transferring annually to the Consolidated Revenue
Fund the realized profits or losses from trading operations and revaluation of holdings.
"It is clear from the above description that the balance in the surplus account at
December 31, 1963 results from a variety of causes, including the several revaluations as
well as trading operations. I propose that this be left in the Fund, where it may serve as a
modest reserve against any possible future revaluation losses.
"I believe that in future it is desirable to distinguish between the profits and losses
arising from trading and investment on the one hand and profits and losses arising from
revaluations. I propose that in future, commencing with this year or as soon as the necessary
parliamentary authority is obtained, the annual balance of profit or loss arising from
trading operations and investment, including interest and discount on securities, trading
profits and losses on purchases and sales of foreign exchange, gold and securities, and the
net valuation adjustments on unmatched purchases or sales during the year should be
transferred to the Consolidated Revenue Fund.
"I would not propose that any decision now be taken to transfer to the Consolidated
Revenue Fund any future profits or losses at our year-ends arising from changes in
exchange rates . . .
"Authority will be required from Parliament to recoup the Exchange Fund for any
deficit in accordance with the course of action I have proposed and some change in the
law is desirable to make clear the authority to transfer profits or surpluses to the
Consolidated Revenue Fund".
In its Sixth Report 1964 (see Appendix 1, item 31) the Public Accounts Committee
noted the foregoing and stated as follows:
"The Committee is glad to note that in future, commencing with this year or as soon
as the necessary parliamentary authority is obtained, the annual balance of profit or loss
arising from trading operations and investment, including interest and discount on securities,
trading profits and losses on purchases and sales of foreign exchange, gold and securities,
and the net valuation adjustments on unmatched purchases or sales during the year, is to be
transferred to the Consolidated Revenue Fund.
"The Committee approves of the Minister's proposal that the surplus of $30.3 million
at December 31, 1963 be left in the fund to serve as a reserve against any future revaluation
losses.
"The Committee understands the reluctance of the Minister to decide today whether
future profits or losses arising from changes in exchange rates should be transferred to the
Consolidated Revenue Fund at each year-end because of the possibility of these causing
serious distortions in the budgetary accounts. However, the Committee also noted the
statement by the Auditor General that the present surplus would be much larger had past
exchange losses been charged to expenditure as they occurred, and that a drop of as little
as two cents in value of the United States dollar can again cause the Exchange Fund
Account to go into a deficit position. It therefore recommends that in the event the holdings
of the Account drop in value by an amount sufficient to eliminate the above-mentioned
surplus and create a deficit in the Account, the Minister of Finance of the day give
AUDITOR GENERAL'S REPORT 145
immediate consideration to the elimination of the deficit in order to maintain the full
value of the advances made from the Consolidated Revenue Fund to the Exchange Fund
Account".
178. Municipal Development and Loan Board. This Board was established by the
Municipal Development and Loan Act, 1963, c.13. The purpose of the Act is to promote
increased employment in Canada through financial assistance by way of loans to munici-
palities to augment or accelerate municipal capital works programs.
Funds for the Board's 1963-64 requirements were provided by a parliamentary
appropriation (Finance Vote 38e). Expenditures for the period from September 5, 1963
to March 31, 1964 amounted to $59,660, representing administrative costs. No loans
were disbursed during 1963-64 but 132 loans to provinces and municipalities amounting
to $45.3 million were approved by the Board.
179. National Gallery of Canada. The Gallery was incorporated under the National
Gallery Act, 1913, c.33, now R.S., c.186. Its objects and powers comprise the develop-
ment, maintenance, care and management of the national gallery, the acquisition of
works of art and generally the promotion of the public interest in art in Canada.
Pursuant to section 9 of the National Gallery Act, the Gallery's accounts for the
year ended March 31, 1964 were examined and a report was addressed to the Secretary
of State. A more detailed report to the Board of Trustees included our comments and
recommendations concerning various administrative weaknesses some of which had been
referred to in previous reports but are not yet entirely corrected. A budget and cost
accounting system to provide control over budgeted funds on a functional basis and to
supply essential cost information on the state of individual program activities was put
into operation in April 1964.
The following is a comparative summary of expenditures for the past two years:
Year ended March 31
1964 1963
Administration, operation and maintenance —
Salaries and wages $ 351,000 $ 348,000
Professional and special services (including security personnel) .... 185 000 155,000
Other 290,000 308,000
826,000 811,000
Purchases of works of art 323,000 138,000
$ 1,149,000 $ 949 000
The operating expenses of the National Gallery are met largely from annual parlia-
I mentary appropriations, with the remainder paid from a special operating account.
Funds for the acquisition of works of art are provided through the National Gallery
Purchase Account to which are credited moneys appropriated by Parliament for that
! purpose. Funds from the National Gallery Special Operating Account are also used to
; acquire works of art and $10,000 was expended for this purpose in 1964.
146 AUDITOR GENERAL'S REPORT
As stated in last year's Report (paragraph 176) and in the 1962 Report, parliamentary
control may be weakened by the supplementing of specific appropriations by expenditures
from the National Gallery Special Operating Account, and by crediting to the Special
Operating Account proceeds from the sale of Gallery publications, fees from exhibitions
and lectures, and service charges when the costs of producing this revenue are mainly met
from the parliamentary appropriation for operating expenses.
180. National Productivity Council. The Council was established by the National
Productivity Council Act, 1960-61, c.4, with the objects of promoting and expediting
continuing improvement in productive efficiency in the various aspects of the Canadian
economy.
The Economic Council of Canada Act, 1963, c.ll, enacted on August 2, 1963, provided
for the repeal of the National Productivity Council Act and the payment of any amounts
standing to the credit of the National Productivity Council, after payment of the
Council's debts and obligations, to the Receiver General to be held and applied toward
the payment of the expenses of the Economic Council of Canada. Accordingly the balance
of $5,000 remaining at the credit of the National Productivity Council at March 31,
1964, after payment by the Council of all its debts and obligations, was paid to the
Receiver General in April 1964.
The following is a comparative summary of the income and expense of the National
Productivity Council for the last two years:
Income —
Statutory grant
Donations
Government contributions under section 16 of the Act
Interest
Expense —
Salaries and employee benefits
Professional services
Travel
Donations to approved projects
Office equipment and stationery
Conference and seminar expenses
Publicity
Telephone, telegraph, express and postage
Rent and accounting services
Printing
Travel and living expenses of Council members
Miscellaneous
Year ended March 31
1964
1963
$ 150 000
$ 150 000
52,000
86.000
13,000
83,000
2,000
5,000
217,000
324,000
108,000
131,000
32,000
14.000
31.000
53,000
23,000
119,000
21,000
9.000
15,000
13,000
11,000
18.000
8.000
13.000
7,000
7.000
6,000
6,000
4,000
15,000
2,000
2.000
268,000
400,000
51,000
76,000
AUDITOR GENERAL'S REPORT 147
Year ended March 31
1964 1963
Deduct —
Credits for accommodation and accounting services provided by the
Government of Canada (recorded above) 7,000 7,000
Travel and living expenses of Council members provided by
statutory appropriation (recorded above) 4,000 15,000
11,000 22,000
Excess of expense over income $ 40.000 $ 54,000
The statutory grant was received under the provisions of section 15 of the National
Productivity Council Act as the third payment authorized under this section, which
directed the Minister of Finance to pay to the Council, from the Consolidated Revenue
Fund, for each of the first three years after the coming into force of the Act, the amount
of $150,000.
Section 16 of the Act provided that, where the Council, during the first three years
of its existence, acquired by gift, donation or bequest any asset from a person other than
Her Majesty, the Minister of Finance should pay out of the Consolidated Revenue Fund,
in addition to the amount paid under section 15 in any year, an amount equal to the
value of the property so acquired. During the year the Council received donations
totalling $52,000, of which $13,000 was received from sources other than Her Majesty
before the repeal of the National Productivity Council Act and was accordingly matched
by contributions by the government, and the remaining $39,000 was not eligible for
matching contributions because it was received either after the repeal of the Act or from
Her Majesty in right of several provinces.
In our Report last year, we noted that a report of all proceedings under the National
Productivity Council Act for the year ended March 31, 1963 which section 19 of the Act
directed should be submitted by the Chairman of the Council to the Ministers of Trade and
Commerce and of Labour within three months after the close of the fiscal year and laid
before Parliament within fifteen days after its receipt, had been submitted to the
Minister of Trade and Commerce on August 2, 1963 but had not been tabled in Parlia-
ment before adjournment on that date. The Council's report was laid before Parliament
on April 15, 1964.
181. Public Printing and Stationery stores. Section 34(2) of the Public Printing and
Stationery Act, R.S., c.226, requires the Auditor General to "annually or more frequently
at his discretion, cause the stock of stationery, printing materials and supplies in store,
to be checked with the quantities purchased and supplied". During the year under review,
as in prior years, such tests were made as we considered necessary to establish that the
controls exercised by the Department were operating satisfactorily. A report on the
examination was made to the Minister of Defence Production.
During the year there was a change in accounting procedure with respect to printing
unit inventories which for the fiscal year 1963-64 and future years are to be recorded as
work in process. The inventories of stationery, printing materials and supplies held by
As at March 31
1964
1963
$ 471,000
$ 705,000
154,000
152,000
468,000
398.000
423,000
473 000
110,000
117,000
47,000
72,000
874,000
677,000
$ 2,547,000
$ 2,594,000
148 AUDITOR GENERAL'S REPORT
the Department totalled $2,547,000 at March 31, 1964 and compared with inventories
at the end of the preceding year, adjusted to the new basis, as follows:
Stationery supplies ,
Typewriter and office machine parts
Paper
Printing and maintenance supplies . .
Printing sub-stores — main plant
Miscellaneous ,
Work in process
182. The Queen Elizabeth II Canadian Fund to Aid in Research on the Diseases of
Children. The Queen Elizabeth II Canadian Research Fund Act, 1959, c.33, established
this Fund to assist individuals or organizations to undertake or carry on research into
the diseases of children and the causes, prevention and treatment of such diseases. A
Board of Trustees consisting of a chairman and six members is responsible for the manage-
ment and administration of the Fund. As required by the Act, the National Research
Council provides, without charge, such secretarial and other administrative and technical
services and facilities as may be required by the Board, whose head office is in Ottawa.
A report on the audit of the Fund's accounts for the year ended March 31, 1964, which
contained no qualification, was made to the Board and to the Prime Minister as required
by the Act.
The Act provided $1,000,000 for the Fund and also permits the Board to accept gifts
for its purposes. The following is a summary of the Fund's transactions for the year
ended March 31, 1964 together with comparable figures for the preceding year:
Year ended March 31
1964 1963
Balance at April 1 $ 1,049,000 $ 1,003,000
Add:
Earnings on investments 58,000 57,000
Gifts 1,000 1,000
59,000 58,000
1,108,000 1.061,000
Deduct :
Awards approved during year 32,000 12.000
Balance at March 31 $ 1,076,000 $ 1,049,000
Two categories of awards have been approved by the Board of Trustees, namely
"Queen Elizabeth II Fellowships" and "Queen Elizabeth II Scientists". Awards in the
first category are made to doctors of medicine or "other suitable fields of science" to
enable them to obtain advanced training and experience in research related to diseases
AUDITOR GENERAL'S REPORT 149
of children, and range in value from $3,500 to $5,000 per annum. During the year under
review one renewal and six new fellowships totalling $32,000 were approved. The second
category covers the salaries of scientists appointed to carry out research at universities
or teaching hospitals. Regulations approved by the Board of Trustees with regard to
these appointments provide for payments of $10,000 per annum for the first three years
and $5,000 for each of the next following three years, after which the institution at
which the appointment is held is expected to maintain the salary of the appointee at an
appropriate level without recourse to the Fund. No appointments were made under this
category during the year but the Fund continues to support three appointees of prior
years. At March 31, 1964 the outstanding liability in respect of these appointments,
$65,000, was included in the total provision of $98,000 for awards approved, appearing
in the balance sheet of the Fund at that date.
183. Royal Canadian Mint stocks. The Royal Canadian Mint is a branch of the
Department of Finance and its revenue and expenditure accordingly form part of the
departmental revenue and expenditure and are examined as such. However, section 20
of the Currency, Mint and Exchange Fund Act, R.S., c. 315, requires that the Auditor
General shall "at least once in each year inspect the store of bullion and coin at the Mint".
Such an inspection was made as at February 29, 1964 and a report thereon was made to
the Deputy Minister of Finance. The stocks of bullion and metals at cost, and coin at
face value, held by the Mint at February 29, 1964 amounted to $24,198,000 comprising:
gold $3,395,000, silver $20,480,000, nickel $99,000, bronze $224,000.
184. Unemployment Insurance Fund. The Unemployment Insurance Act 1955, c. 50
(superseding 1940, c. 44) is administered by the Unemployment Insurance Commission
consisting of three commissioners appointed by the Governor in Council. Its purpose is
to provide for insurance against unemployment and to maintain a national employment
service. The Unemployment Insurance Fund was established as a special account in the
Consolidated Revenue Fund to which all contributions from insured employees and their
employers and Government of Canada contributions equivalent to one-fifth of the total
employee-employer contributions, together with interest on investments, are credited —
and to which benefits and other payments under the Act are charged.
Financial statements showing the state of the Fund at the end of the fiscal year
and the operations of the Fund during the year are prepared annually by the Commission.
In our 1960 and subsequent Reports attention was drawn to the fact that the Act
does not provide for these financial statements to be audited. The Public Accounts
Committee made reference to this in its Fifth Report 1961, Fourth Report 1963 and
Fourth Report 1964 (see Appendix 1, item 14) recommending that these statements be
required by statute to be prepared by the Commission and reported upon by the Auditor
General. Although the Act has not yet been amended, the Commission has submitted
its financial statements for the past three years to the Audit Office for examination, and
the statements for the year ended March 31, 1964, together with my report thereon to the
Minister of Labour, are reproduced in the Public Accounts, Volume II, pages 2222 to
22 24.
150 AUDITOR GENERALS REPORT
The following is a comparative summary of the Fund's transactions for the past
three years, together with the year-end balances at the credit of the Fund:
1961-62 1962-63 1963-64
Receipts —
Contributions from employers and employees $277,789,000 $ 286,430,000 $ 296,586,000
Contributions from Government of Canada .. 55,558,000 57,286 000 59,317,000
Other income 6,267,000 2,570,000 1,172,000
339,614,000 346,286,000 357,075,000
Disbursements —
Benefit payments 454,740,000 403,191,000 365,655,000
Interest on advances 2,961,000 238,000
457,701,000 403,191,000 365,893.000
Excess of disbursements over receipts $118,087,000 $ 56,905,000 $ 8,818,000
Balance at credit of the Fund $ 66,598,000 $ 9,693,000 $ 875,000
The annual deficits shown above do not include the administrative expenses of the
Commission which are financed out of parliamentary appropriations to the Commission
(Department of Labour Vote 50) in accordance with section 10 of the Act. These expenses
amounted to $48,684,000 in 1963-64 compared with $48,034,000 for the preceding year.
Also not included are : the value of accommodation for the Commission's offices through-
out Canada, contributions to the Public Service Superannuation Account, accounting
services provided by the Comptroller of the Treasury and other services provided by
government departments, all of which were estimated at $10,034,000 for 1963-64 as
against $9,754,000 for 1962-63.
Costs totalling $393,000 associated with a new program of registration of employees
begun during 1963-64 to replace an inadequate system of numbering persons insured
under the Unemployment Insurance Act and designed, as well, to serve the needs of the
proposed Canada Pension Plan, accounted for a major portion of the increase of $650,000
in administrative expenses in the year. The remainder was largely the result of an
increase of $240,000 in commissions paid to the Post Office Department arising out of
an upward adjustment of commission rates to meet the increased costs of selling unem-
ployment insurance stamps and meter impressions.
The new registration program is to be completed in 1964-65 and it is estimated that
its total cost to the Commission will be $2,500,000. Because early adoption of a Canada
Pension Plan appeared imminent, the Commission, in conjunction with its program of
assigning new numbers to all employees insured under the Act, was requested to solicit
the registration of non-insured employees as well. The cost of processing these additional
registrations, together with the extra publicity costs arising out of the need to acquaint
this segment of the public with the program, has resulted in costs being charged to the
Unemployment Insurance Commission appropriation for administrative expenses in
excess of those required to carry out the purposes of the Unemployment Insurance Act.
AUDITOR GENERAL'S REPORT 151
In 1963-64, for the seventh consecutive year, disbursements from the Unemployment
Insurance Fund exceeded receipts although the excess of disbursements amounted to only
$8,818,000 compared with $56,905,000 in 1962-63 and $118,087,000 in 1961-62. This sub-
stantial reduction in the excess of disbursements over receipts for the third successive
year is attributable to fewer benefit payments and shorter benefit periods although there
has been a slight increase in the average weekly benefit paid in each year. Comparisons
follow :
1961-62 1962-63 1963-64
Average monthly percentage of the insured population
drawing benefit 9.3% 8.1% 7.2%
Number of initial benefit claims allowed 1,370,738 1,292.476 1,197,421
Average number of benefit weeks paid 14.3 13.4 13.1
Average weekly benefit rate paid $ 24.02 $ 24.27 $ 24.49
There was an occasion during the year when, for the first time since its inception,
the resources of the Fund were exhausted. When this happened the amounts required to
discharge the Fund's liabilities were obtained by Government of Canada loans which
were authorized to a maximum of $55,000,000 by Governor General's special warrants
dated April 1 and May 2, 1963. Borrowings reached a maximum of $35,000,000 on May
31 and were fully repaid by August 9, 1963.
All security transactions of the Fund in the year under review were in a special
Government of Canada issue which is redeemable at par subject to 30 days' prior notice,
and thus no gains or losses on sales were incurred.
In keeping with past practice, we reported to the Chief Commissioner on each of
the examinations of field offices made during the year. Prompt attention was given to
all audit observations raised and corrective action was taken where called for. Briefly, our
examinations are designed to test the adequacy of internal control over contributions,
other income, benefit payments and the collection of overdue contributions, penalties and
benefit overpayments. The extent to which adjudication of claims complies with the
provisions of the Act and regulations is likewise examined. In appraising the validity of
benefit awards, no attempt is made by the Audit Office to verify the accuracy or com-
pleteness of information regarding claimants, contained in the records of the Commission,
beyond questioning apparent deficiencies in these records. This aspect of the verification
of claims is carried out by the Commission's own investigation-enforcement staff.
No attempt is made by this Office to audit the accounts of employers to see that
employer-employee contributions are fully made to the Unemployment Insurance Fund
and that each insured worker is credited with the proper contributions. These records are
verified by the Commission's internal audit division.
185. Yukon Territorial Government. The Yukon Act, 1952-53, c. 53, as amended,
provides for the appointment by the Governor in Council of a chief executive officer for
the Territory to be known as the Commissioner and for the election of a Council com-
posed of seven members. The Commissioner in Council is empowered by the Act to
make ordinances for the government of the Territory in those fields normally within
provincial jurisdiction.
152 AUDITOR GENERAL'S REPORT
The accounts relating to the receipt and expenditure of territorial funds and of
money appropriated by Parliament for the Territory are subject to examination by the
Auditor General of Canada, in accordance with section 26 of the Act. There is no require-
ment, however, for the preparation of annual financial statements, nor for their certifica-
tion by the Auditor General as the statutory auditor. The Department of Northern
Affairs and National Resources has advised that it proposes to recommend amending
legislation to this effect. Pending the enactment of such legislation, the Commissioner
has submitted for audit examination the annual financial statements prepared by the
Territory for publication in its Public Accounts, and we have agreed to furnish audit
certificates with respect to these statements.
The following is a summary of expenditure and revenue of the Yukon Territorial
Government for the year ended March 31, 1964, with comparable amounts for the
preceding fiscal year :
Year ended March 31
1964 1963
Expenditure —
Capital projects $ 2,721,000 $ 3,817,000
Education 1,358,000 1,153,000
Roads, bridges and public works 1,009,000 961,000
Yukon Hospital Insurance Service 683.000 744,000
Health and welfare 655,000 480,000
Justice 336,000 330,000
Municipal and area development 244,000 277,000
Loan interest 206,000 56,000
Other expenditure 823,000 581,000
8,035,000 8,399,000
Revenue —
Federal grants —
Operating 1,609,000 1,252,000
Loan amortization 314,000 83,000
1,923,000 1,335,000
Liquor profits 916.000 922,000
Tax revenue 843,000 703,000
Licence revenue 271,000 259,000
Other revenue 268,000 197,000
4,221,000 3,416,000
Expenditure recoveries:
Capital projects 1,397,000 1,730,000
Roads, bridges and public works 617,000 564,000
Education 514,000 450,000
Yukon Hospital Insurance Service 356,000 471,000
Health and welfare 258,000 160,000
Other recoveries 239,000 97,000
Excess of expenditure over revenue
3,381,000
3.472,000
7,602,000
6,888,000
$ 433,000
$ 1,511,000
AUDITOR GENERAL'S REPORT 153
Loans payable to the Federal Government at the close of the fiscal year totalled
$6,174,000, an increase of $743,000 from the previous year's total of $5,431,000. Under
the federal-territorial financial agreement for the five-year period ending March 31, 1967,
Canada agreed to make certain annual payments to the Territory in return for which the
Territory agreed to refrain from imposing, levying or collecting individual and corporation
income taxes and succession duties.
One of the payments for which the agreement provides is in respect of "amortization
payments on outstanding loans for capital expenditures". For the year under review an
amount of $314,000 was involved, of which $170,000 related to interest and $144,000 was
for the purpose of reducing the principal of loans.
A result of this particular annual payment is that Parliament is asked to provide
funds to cover payment of interest to the Crown in right of Canada and also to repay
amounts previously appropriated for the purpose of making the loans to the Territory.
During the preparation of this Report, my officers and I have been saddened by the
sudden passing of Bruce Arnold Millar, C.A., my Audit Director in charge of the audit of
defence expenditures for the past ten years. Since he joined the Audit Office twenty-four
years ago, Arnold Millar's dedication to his work has commanded the respect of all those
with whom he came in contact during his long public service.
In conclusion, I should like to record my appreciation again at this time to all
members of the staff of the Audit Office for their loyalty and devotion to duty during
the past year.
A. M. HENDERSON,
Auditor General of Canada.
December 9, 1964.
APPENDICES
Recommendations and Observations by the Standing Committee on Public Ac-
counts not yet implemented or dealt with by Executive Action Appendix 1
Non-Productive Payments noted in the Audit for the Fiscal Year ended March 31,
1964 Appendix 2
Summary of Employees of the Public Service, by Departments, Crown Corpora-
tions and Other Instrumentalities Authorized and on Strength as at March 31,
1964, with comparable figures as at March 31, 1963 Appendix 3
Summary of Expenditure by Standard Objects for the Fiscal Year ended March 31,
1964, with comparable figures for the preceding fiscal year Appendix 4
95480—11
156 AUDITOR GENERAL'S REPORT
APPENDIX 1
RECOMMENDATIONS AND OBSERVATIONS BY THE
STANDING COMMITTEE ON PUBLIC ACCOUNTS NOT YET
IMPLEMENTED OR DEALT WITH BY EXECUTWE ACTION
Fourth Report 1963 — presented to the House on December 19, 1963
1. second class mail. The Committee expressed its belief that early consideration should
be given by Parliament to ways and means of covering the loss of the Post Office
Department in handling second class mail and requested the Auditor General to keep the
matter before Parliament in his annual Reports in order that subsequent committees
may give consideration to it. Reference is made to paragraph 79 of this Report.
2. depaktmental operating activities. The Committee reiterated its belief that it would
be desirable, in order that Members may have a clear understanding of the true financial
results of departmental trading and servicing activities, were overall financial statements
reflecting these activities to be included in the Public Accounts, provided this can be
done without undue cost or staff increases. The Committee requested the Auditor
General to continue to keep the development of this objective under close surveillance
and to report thereon to the Committee in due course. Reference is made to paragraph 161
of this Report.
3. internal financial control. The Committee requested the Auditor General to
continue his examinations into the important area of internal financial control and to
report further to the House on steps taken or which should be taken to improve financial
management in the various departments, Crown corporations and other instrumentalities.
4 . unemployment assistance. The Committee shared the opinion of the Deputy Minister
of Welfare and the Auditor General that consideration should be given by Parliament to
redrafting the Unemployment Assistance Act so as to state more clearly the objectives
and methods of achieving them and to remove ambiguities in the present law which
have resulted in varying interpretations. It believed that consideration should also be
given to including with Unemployment Assistance other existing programs to assist the
needy so as to provide better co-ordination of federal-provincial efforts in this field
Reference is made to paragraph 67 of this Report.
Fourth Report 1964 — presented to the House on July 28, 1964
5 . findings of the royal commission on government organization. The Auditor Genera
referred to the numerous and widespread findings made public in 1962 and 1963 by thi;
Royal Commission as a result of its examination into the organization and methods o
operation of departments and agencies of the government. He reminded the Committei
that where administrative action has caused or contributed to waste of public money
it is his duty to report such cases as he considers should be brought to the notice of th>
House. He pointed out that while some instances come to his attention directly durin;
the course of his audit work, others are indirectly brought to light by action on th
part of the administration itself in the course of examining its own operations, as, fo
example, through the medium of internal auditing.
AVD1TOR GENERAL'S REPORT 157
By the same token, he considers it to be his duty to study reports prepared by or for the
managements of departments and agencies, as are by law available to him, directed
toward the saving of public money by the elimination of wasteful practices and unneces-
sary or uneconomical operations. To the extent such reports correctly indicate where
and how savings could be made, the Auditor General considers he has a responsibility
to Parliament to follow through in all such cases and ascertain what action has been
or will be taken toward achieving such savings, or if no action is to be taken, to inquire
why. On the other hand, he does not conceive it to be his responsibility to assess the
practicability of any specific recommendations made because, in his view, the decision
with respect to the extent to which, or the ways in which, such recommendations can
and will be implemented must always be the sole responsibility of management.
With regard to the findings of the Royal Commission on Government Organization, the
Auditor General believes it to be of considerable importance that those relating to
outdated procedures, uneconomical operations and wasteful practices be effectively dealt
with, not only in the interests of improving efficiency but because of the substantial
savings of public funds which could result. It is the opinion of the Committee that not
only does this lie within the statutory responsibilities of the Auditor General but that
the Auditor General's concept of his responsibilities in this matter is in accord with the
intent and wishes of Parliament. Reference is made to paragraph 7 of this Report.
6. the form and content of the estimates. In its Third Report 1963 tabled in the House
on December 19, 1963 the Committee had made the following immediate recommenda-
tions under paragraph 3:
(a) Adoption of the revised vote pattern proposed by the Treasury Board for introduction into the
Main Estimates 1964-65 subject to certain improvements suggested by the Auditor General to
the Committee.
(b) Inclusion of supporting financial information of Crown corporations and other public instru-
mentalities in the Details of Services for the purpose of providing better information to the
Members and to the public with respect to the nature of the fiscal requirements of the Crown
corporations and other agencies requiring financing by parliamentary appropriations.
(c) Presentation of additional information in the Estimates concerning the staff of all government
departments and the Crown corporations and other public instrumentalities referred to under
clause (b) above:
(i) the number of employees actually on the payrolls at the latest date available during the
course of the Estimates preparation; and
(ii) brief notes explaining proposed major increases in the size of establishments.
In that report the Committee had recommended the adoption of as many of the foregoing
improvements as might be practicable in the Main Estimates for 1964-65 and it noted
that the revised vote pattern recommended in (a) above had been introduced by the
Treasury Board in the Main Estimates for 1964-65 tabled by the Minister of Finance
in the House on March 3, 1964.
The Secretary of the Treasury Board explained to the Committee that he had not yet
been able to discuss with any of the Crown corporations or public instrumentalities the
practicability of including supporting financial information in the Estimates with
respect to their operations. He undertook to do so and to advise the Auditor General
for the information of the Committee. He stated that the Minister of Finance did
propose to present the additional staff information recommended by the Committee
under (c) above in the Main Estimates commencing with those for the fiscal year
1965-66.
158 AUDITOR GENERAL'S REPORT
The members of the Committee were glad to learn from the Secretary of the Treasury
Board that he supported the recommendations made under this heading by the Auditor
General in his Reports to the House. The Committee believes that there is room for
improvement in the Estimates presentation designed to provide more informative
description and more complete disclosure of pertinent supporting detail — information
which, in the opinion of the Committee, is essential if Parliament is to be in a position to
give the Estimates the close study and consideration they deserve.
The Committee also recommended that consideration be given to referring the depart-
mental Estimates in greater numbers to the Standing Committee on Estimates so that
it might examine them in detail and report back thereon to the House. It believed such
a procedure would not only accelerate the work of the House but would contribute
materially to improving parliamentary control of public funds before those funds are
committed or spent. Reference is made to paragraph 8 of this Report.
7. living allowances to federally-appointed judges. In its Fourth Report 1963 the
Committee had noted that in cases where judges were appointed from time to time as
conciliators or arbitrators on boards, they were paid living allowances of $60 a day in
addition to actual out-of-pocket expenses for transportation, parlour and pullman car
accommodation and taxicabs. The Committee was of the opinion that a daily rate at
this level could be regarded as including an element of remuneration which would be
contrary to subsection (1) of section 39 of the Judges Act. It had therefore recommended
that if additional remuneration was to be paid to judges appointed for the purposes
described above, the approval of Parliament for payment of such additional remuneration
should be sought.
The Committee recorded that, despite this recommendation, a case had since been
noted where a rate of $100 a day was approved on May 7, 1964 by the Treasury Board
and the Governor in Council on the recommendation of the Department of Labour.
The Committee reiterated the recommendation made in its Fourth Report 1963 that if
additional remuneration was to be paid to judges appointed as conciliators or arbitrators
on boards established to deal with disputes affecting employers and their employees, the
approval of Parliament for payment of the additional remuneration should be sought.
8. governor general's special warrants. The Committee recommended that a study be
made of Governor General's special warrants. Reference is made to paragraph 45 of
this Report.
9 . remission of sales tax on oleomargarine. The Committee was concerned to learn that
the undertaking given in 1949 that the Government would submit to Parliament
legislation designed to exempt oleomargarine sold in Newfoundland from the federal
sales tax in the same manner as basic foodstuffs in other parts of Canada had not been
carried out. Instead, the authority provided to the Executive by section 22 of the
Financial Administration Act had been used to render a tax, applicable elsewhere in
Canada, completely inoperative in one province.
The Committee stated that it does not consider that section 22 of the Financial
Administration Act should be used in this way.
10. advertising costs. The Committee asked to be informed by the Auditor General in his
next follow-up report as to the progress made towards centralizing the negotiation of
advertising contracts in the Department of Defence Production.
AUDITOR GENERAL'S REPORT 159
11. cost of gasoline used in departmental vehicles at Ottawa. The Committee learned
from the Secretary of the Treasury Board that an alternative means of effecting savings
in the purchase of gasoline was presently being considered. Having in mind the time
which had elapsed since the matter was first taken under consideration, the Committee
urged the Secretary of the Treasury Board to have the matter finalized at the earliest
possible date. The Committee further requested that the Secretary of the Treasury Board
provide it in due course with information as to the final decision in this matter and
also as to the various alternatives which were considered and, with respect to those
which were rejected, the reasons for such rejection.
12. educational leave costs. The Committee was pleased to hear the Secretary of the
Treasury Board undertake to have a study made of this matter and requested the
Auditor General to keep it informed as to the progress being made.
13 . PAYMENT OF MAINTENANCE EXPENSES OF CIVIL SERVICE RECREATIONAL ASSOCIATION CENTRE.
The Committee expressed the opinion that Treasury Board should give consideration to
a re-wording of the Estimates to deal with problems arising out of non-governmental
organizations receiving financial assistance.
14. unemployment insurance fund and its administration. The Committee stated its
opinion that it is in the public interest that the Government's consideration of the report
of the Committee of Inquiry be completed as soon as possible, and that the government
bring forward promptly such proposals as it may deem necessary to deal with the
problems raised by the report.
The Committee also reiterated the additional recommendation made in its Fourth Report
1963 that preparation of the annual financial statements for the Unemployment Insurance
Fund should be made a statutory responsibility of the Unemployment Insurance
Commission and that the statements should be reported on by the Auditor General.
Reference is made to paragraph 184 of this Report.
15. board of grain commissioners. In its Fifth Report 1961 the Committee had stated that
it felt concerned that in each year since 1953-54 the expenditure of this activity had
exceeded its revenue by more than $1 million and it requested the Auditor General to
keep this matter under review and report thereon to the Committee in due course.
The Committee learned from the Auditor General that he had been advised by the
Deputy Minister of Agriculture that effective August 1, 1965, the Board of Grain
Commissioners proposes to amend its regulations to increase inspection and weighing
fees by 50% in order to enable the Board to meet expenditures involved in providing
these services. The Committee noted that the Board had had in mind a revision of
these fees for the present crop year but, due to the very narrow margin within which the
grain trade was operating under the current international agreements, it was not
considered equitable to announce changes after those contracts had been entered into.
Reference is made to paragraph 165 of this Report.
16. office of the auditor general. At its request, the Auditor General brought the
Committee up to date on the progress of his staff recruitment under the arrangement
outlined in the Committee's Fourth Report 1963.
Members of the Committee were disturbed to find that the actual working strength of the
Office had only increased from 159 to 161 between November 30, 1963 and April 30, 1964
due to delays which had developed in the procedures of the Civil Service Commission
and the Treasury Board in connection with recommendations made by the Commission
160 AUDITOR GENERAL'S REPORT
that revised rates of pay and new classes be established for the existing auditor strength.
Consequently, the Office remained 18 auditors short of the total approved establishment
of 179 originally agreed to with the Minister of Finance and the Treasury Board in
July 1960, or four years ago.
In the opinion of the Committee, it is fundamental that this independent auditing office
be strong, capable, efficient and equipped to operate in accordance with the high
standards of independence and objectivity expected of professional accountants, with
respect to the legal duties.
The Committee believes that as an officer of Parliament the Auditor General should be
free to recruit the staff he needs in the same independent manner as do other officers of
Parliament and Crown corporations generally. The Auditor General informed the
Committee that the recruitment outlook was currently satisfactory and that, barring
any unforeseen developments, he believed that he could fill his presently approved staff
establishment under existing arrangements by the end of the year. The Committee
therefore asked him to render a further report on this situation in due course.
The Committee noted that amendments to the Financial Administration Act were to be
introduced in due course and believed appropriate amendments should be considered at
that time designed to allow the Auditor General to appoint such officers and employees
as are necessary for the proper conduct of his Office. Reference is made to paragraph 11
of this Report.
Fifth Report 1964 — presented to the House on August 5, 1964
Canadian Broadcasting Corporation
17. annual report of the corporation. The Committee recommended that the President
and Board of Directors of the Corporation take steps to improve the contents of the
Corporation's annual report by including therein supplementary financial information
concerning its operating and capital budgets and expenditures, for the purpose of
providing additional information to Parliament and the public.
18. statement of operations. The Committee recommended that the President and the
Board of Directors realign the format of the annual statement of operations of the
Corporation in a manner designed to show separately in future for each fiscal year
(1) the cost of programs produced without advertising but which were available for
sale, and (2) the gross profit or loss derived from the sale of advertising from all
sources. Reference is made to paragraph 137 of this Report.
19. size of operating and capital requirements. The Committee expressed concern at the
levels the Corporation's spending on operating and capital accounts has reached since
television was first introduced into the national service in 1955. It commended considera-
tion of this problem as one of the primary and immediate objectives of the Advisory
Committee on Broadcasting, formation of which was announced by the government on
May 25, 1964.
20. authority of comptroller over regional accountants. The Committee was disturbed
to learn that the authority of the Comptroller over the accounting staffs at the regional
centres of the Corporation across Canada is not clearly defined and expressed agreement
with the view of the Auditor General that the regional accountants should be responsible
directly to the Comptroller at head office in the interests of effective internal financial
control. The Committee expressed the opinion that a clear definition of this responsibility
AUDITOR GENERALS REPORT 161
is overdue and was pleased to be advised by the President that it will receive early
attention. It requested the Auditor General to advise the Committee when this matter
has been settled to his satisfaction. Reference is made to paragraph 137 of this Report.
21. REPORT OF THE ROYAL COMMISSION ON GOVERNMENT ORGANIZATION. The Committee
recommended that the Secretary of State table an official memorandum in the House
presenting the Corporation's views and its replies to each of the matters dealt with by
this Royal Commission in its report No. 19 and that this be done before the estimates
of the Corporation are considered by the House. Reference is made to paragraph 137
of this Report.
Sixth Report 1964 — presented to the House on October 20, 1964
22. national defence administrative regulations and practices. The Committee expressed
the hope that the changes which have been made or are in the process of being made in
the Armed Forces' administrative regulations will bring about the desired results. It
requested the Auditor General to inform the House of any case where the changes
appear to be inadequate or where abuse and waste of public funds develop. Reference
is made to paragraph 56 of this Report.
23. lease termination payments. The Committee stated it had been consistently recom-
mending since 1960 that the maximum period for lease termination payments be reduced
in future from three months' rent as presently permitted to the equivalent of one month's
rent. It expressed the opinion that the present regulation is too susceptible to abuse and
constitutes an unnecessary waste of public funds. It again recommended that the
regulation be changed to reduce the maximum period to one month but suggested that
there be a proviso that payment up to three months may be made in cases of hardship,
provided such cases are approved by the Deputy Minister. Reference is made to
paragraph 57 of this Report.
24. unauthorized use of crown-owned vehicles. The Committee recommended that the
regulations be amended to provide for uniform penalties of sufficient magnitude, appli-
cable to all personnel, to act as a real deterrent to the unauthorized use of Crown-owned
vehicles.
25. financial assistance to town of oromocto. The Committee recommended to the
Department of Finance that consideration be given to writing off to expense certain
loans made to the Town. Reference is made to paragraphs 62 and 122 of this Report.
26. educational costs incurred by the department of national defence. The Committee
requested the Auditor General to follow this matter up to determine that amounts of
grants underclaimed in the past are recovered and that practices adopted by the
Department to avoid losses in the future are adequate. Reference is made to paragraph 58
of this Report.
27. ASSISTANCE TO PROVINCES BY THE ARMED FORCES IN CIVIL EMERGENCIES. The Committee
noted that certain provinces had not settled outstanding accounts with the Department of
National Defence relating to assistance provided by the Armed Forces in civil
emergencies in prior years. It also noted that as the Department had not been successful
in collecting the accounts, they had been referred to the Executive for direction but such
direction had not as yet been received. The Committee directed the Auditor General to
inform it of the final outcome of these matters.
162 AUDITOR GENERAL'S REPORT
28 . pension awards effective at early age. The Committee noted that the Department of
National Defence has been conducting a general review of the benefits payable under
the Canadian Forces Superannuation Act and has been considering the advisability of
introducing deferred pensions similar to those provided for under the Public Service
Superannuation Act and that this review is continuing. The Committee requested the
Auditor General to keep it informed as to the progress being made in the introduction
of deferred pension benefits for servicemen retiring at comparatively early ages.
Reference is made to paragraph 64 of this Report.
29 . discretionary awards of service pensions. The Committee noted that the Department
of National Defence is making a study in an endeavour to achieve a system under
which the entitlements to all pensions would be specific which, if this were possible,
would eliminate the considerations of the Pension Board which is now responsible for
establishing reasons for release. The Committee requested the Auditor General to advise
it in due course of any action taken to revise the present system. Reference is made to
paragraph 65 of this Report.
30. overlapping of pension benefits. The Committee was pleased to hear from the Deputy
Minister of National Defence that it is his intention when the Canadian Forces
Superannuation Act is to be amended to bring this matter to the attention of the
Ministers with a view to preventing future incidents of this kind. The Committee
requested the Auditor General to keep it informed as to progress made.
31. advances to the exchange fund account. The Committee recommended that in the
event the holdings of the Account drop in value by an amount sufficient to eliminate
the surplus of $30.3 million at December 31, 1963 and create a deficit in the Account,
the Minister of Finance of the day give immediate consideration to the elimination of
the deficit in order to maintain the full value of the advances made from the Consolidated
Revenue Fund to the Exchange Fund Account. Reference is made to paragraph 177
of this Report.
32. superannuation accounts. The Committee suggested that the Auditor General outline
to the House in his next Report the adjustments made in carrying out the policy
proposed by the Minister of Finance to the House on March 6, 1964. Reference is made
to paragraph 123 of this Report.
33 . ERRORS IN PUBLIC SERVICE SUPERANNUATION ACCOUNT PENSION AND CONTRIBUTION CALCULA-
TIONS. The Committee expressed concern that this matter (first drawn to the attention
of the Department of Finance by the Auditor General in 1959) , which it regards as being
very serious, is taking so long to be corrected. It requested the Auditor General to keep
it fully informed. Reference is made to paragraph 51 of this Report.
34. Pension increased by payment of two salaries. The Committee stated it expects to sei
suitable amending legislation introduced in due course to protect the Public Servici
Superannuation Account from excessive annuity charges and requested the Audita
General to keep it fully informed.
35. reciprocal transfer agreements for superannuation benefits. The Committer
suggested that when the Public Service Superannuation Act is next amended a suitable
amendment be introduced which will provide for the disposition of any excess amoum
of contributions in reciprocal transfer cases.
AUDITOR GENERAUS REPORT 163
36. INTEREST CHARGES ON LOANS TO THE NATIONAL CAPITAL COMMISSION. The Committee
recorded how, in its Fourth Report 1963, it had expressed the view that since outlays on
properties such as those held by the National Capital Commission are expenditures of
the Crown rather than income-producing investments, it would be more realistic were
Parliament asked to appropriate the funds in the years in which properties, which are
not to be specifically held for resale, are to be acquired, instead of leaving the expenditure
involved in the repayment of loans to be absorbed in future years.
After hearing further evidence, the Committee stated it continues to hold the view that
outlays on properties such as these are expenditures of the Crown rather than income-
producing investments, and that Parliament should be asked to appropriate the funds
in the years in which the properties are to be acquired. It pointed out that if this were
done it would eliminate the need for Parliament to appropriate funds to the Commission
to service loans made under the present practice. The Committee repeated its request
that the Department of Finance review the existing practice with the National Capital
Commission with a view to placing the financing of the Commission on a more realistic
basis.
Reference is made to paragraph 152 of this Report summarizing the results from
operations of the National Capital Commission for the year ended March 31, 1964.
37. accounts receivable. The Committee expressed concern that weaknesses exist in the
internal control with respect to accounts receivable and suggested that the Treasury
Board have the matter studied with a view to ensuring that amounts due to the Crown
are adequately recorded, that an accounts receivable control system is instituted and
that collection procedures are tightened up and firmly enforced.
The Committee expressed agreement with the Auditor General's observation that it
would be more informative to Parliament were a summary showing the overall total
of all accounts receivable due to the Government of Canada, whether in memorandum
form or recorded on the books, included in the Public Accounts each year. Reference
is made to paragraph 119 of this Report.
38. indirect compensation to chartered banks. The Committee recalled that, in its
Fourth Report 1963, it had advised the House that it was in agreement with the view
of the Auditor General that the arrangement existing between the chartered banks and
the Government of Canada does constitute indirect compensation to the chartered banks
and that this may be construed as being contrary to the intent of section 93(1) of
the Bank Act.
The Committee reiterated its belief that, if the banks are to be compensated for services
provided to the Crown, consideration should be given to the most equitable manner in
which this may be done, with statutory sanction being given by means of an appropriate
amendment to the Bank Act, possibly at the time of the decennial revision in 1965.
39. the Canada council. The Committee stated that, in its Fourth Report 1963, it had
noted that the Council proposed to accept the 1956 census as a basis for distribution of
the profits realized and interest earned on the University Capital Grants Fund and also
to accept the "hotch-pot" or trust fund approach to this distribution. Because of doubts
expressed by other legal counsel and the Auditor General as to the propriety of applying
these bases, the Committee had postponed further consideration of the matter.
The Committee was informed that in the interim the Council had proceeded to allocate
and distribute funds resulting from profits realized and interest earned on the foregoing
bases. The Committee regarded the approach as a reasonable one, but because of the
95480—12
164 AUDITOR GENERAL'S REPORT
conflicting views held as to whether the action taken is ultra vires of subsection (2) (6)
of section 17 of the Canada Council Act, recommended that steps be taken to seek
amending legislation to provide clear authority for the Council to use the 1956 census
and the "hotch-pot" approach in the distribution of interest and profits in respect of the
University Capital Grants Fund.
Reference is made to paragraph 174 of this Report summarizing the results from
operations of the Canada Council for the year ended March 31, 1964.
Seventh Report 1964 — presented to the House on December 7, 1964
Surplus Assets Disposal
40. The Committee expressed deep concern that while physical inventory quantities are
maintained and are readily available in respect of all of the equipment and supply items
maintained by the Department of National Defence, the purchase cost of the materials,
including supplies and equipment stores at supply depots and at repair and overhaul con-
tractors' establishments, is not available. In accordance with sound business practice, it
would be reasonable to ascertain, for the purposes of financial management control, the
value of the inventory and what it costs to store and handle such an inventory.
41. While the Committee expressed its satisfaction with the supervisory methods exercised
by the Department of National Defence over its physical inventory quantities, it did
not see how the Department can perform a really effective job of inventory management
without knowing the value of the inventory and what it costs to carry it. Furthermore,
the lack of any cost or carrying values has rendered it difficult for the Committee either
to form any reasonable estimate of the value of the supplies on hand or to determine
what would seem to be a reasonable inventory level for a department the size of the
Department of National Defence to maintain for the requirements of the three Armed
Forces. In this connection it should be borne in mind that appropriations approved for
the Department of National Defence have aggregated an average of $1,646 million
annually, of which $421 million related to equipment, materials and supplies, over the
past five years so that it does not seem unreasonable for the Committee to expect that
some maximum dollar figure of values should be established to govern the size of the
inventory. It was explained to the Committee by the officials of the Department of
National Defence that the Department has been studying this matter for some time
and the hope is entertained that it will be possible in due course to record the dollar
value of this stock subject to the extent to which the recommendations of the Royal
Commission on Government Organization are implemented in the years ahead. The
Committee found general agreement that the determination of this would contribute
materially to an improvement in the management of an inventory of this size.
42 . The Committee made the following recommendations:
(1) that every effort be made by the executive to introduce at as early a date as possible an
effective accounting change in the operations of the Department of National Defence whereby
inventory quantities can be costed on acquisition and recorded in the quarterly or periodic
inventory listings made by the Department;
(2) that effective with the fiscal year 1964-65 the Department of National Defence issue a statement
listing or summarizing all material declared surplus during the year showing, to the extent it
can be determined, its original cost and the value obtained on disposal of this equipment by
Crown Assets Disposal Corporation; also the value obtained for other surplus material, etc.,
declared without value to the Corporation, and that such a statement be placed in the Public
Accounts of Canada;
AUDITOR GE1SERAVS REPORT 165
(3) that the preparation of a statement similar to the foregoing be made a requirement for each
department and agency of the Government declaring material surplus for the purpose of
disposing of such material during each fiscal year and that such statements likewise be placed in
the Public Accounts of Canada effective with the fiscal year 1964-65;
(4) that the sales and inspection procedures of Crown Assets Disposal Corporation be revised with
a view to improving sales techniques.
Eighth Report 1964 — presented to the House on December 7, 1964
43. EMPLOYMENT OF PART-TIME DOCTORS BY DEPARTMENT OF VETERANS AFFAIRS. The Deputy
Minister of Veterans Affairs and the Assistant Deputy Minister and Director General
of Treatment Services outlined the manner in which part-time doctors are employed by
the Department on a negotiated fee basis which permits the doctors at the same time to
collect charges from paying patients in the veterans' hospitals. The Committee noted
the Auditor General's view that such charges constitute public funds and therefore
should be handled in accordance with the requirements of the Financial Administration
Act.
The Committee noted that following a meeting between the Department and Treasury
Board in June 1963, an Order in Council had been issued allowing part-time doctors
to charge paying patients and authorizing them to continue to be paid on the basis of a
fee for each half day of attendance or the equivalent thereof. In point of fact, the
Department has never paid these doctors on the basis of actual time worked but uses
the authority provided in the Order in Council largely as a convenient administrative
device by which payments to different doctors could be varied to the degree their
services are required in the hospitals. The Director General of Treatment Services
agreed that whereas this provided the degree of administrative flexibility desirable from
the standpoint of the Department's senior medical officers, it was not compatible with
the basis of payment outlined in the Order.
The Committee expressed the opinion that the Executive order should be amended and
reworded so as to recognize and deal with the actual operating conditions as they exist
and function in the hospitals, and recommended that the Department review the matter
further with the Treasury Board with a view to giving effect to such an amendment
at an early date.
44. hospital construction grants. The Committee stated it shared the opinion of the
Deputy Minister of National Health and the Auditor General that, since it is inherent
in the Hospital Construction Program that commitments be entered into for future
years as well as the current year, the financing of the program be placed on a period-of-
years basis with parliamentary control being exercised over the total commitments that
may be entered into.
45. awards under the pension act. The Committee made the following recommendations
(see paragraph 89 of this Report) designed to clarify the Act:
(a) that the extent of the powers delegated to the Commission under section 25 of the Act, "to grant
a compassionate pension, allowance or supplementary award in any case that it considers to
be specially meritorious" where the applicant is otherwise unqualified to receive such an award,
be clarified by defining the term "specially meritorious";
(b) that the ambiguity under the Act whereby section 40 (2) appears to contemplate that a pension
in respect of death of a member of the forces be limited to a single class of recipient whereas
other sections of the Act provide that payments in respect of a death may be made concurrently
to a widow (section 37), children (section 26) and parents (section 38), be eliminated:
95480—124
166 AUDITOR GENERAL'S REPORT
(c) that the inconsistency apparent under section 38 of the Pension Act where pensions awarded to
widowed mothers under subsection (3) thereof, which requires that the parent must be incapacitated
by mental or physical infirmity from earning a livelihood, are by reason of subsection (7) being
continued in payment even though the widowed mothers have subsequently been able to
undertake full-time employment, be removed;
(d) that consideration be given to adding a section to the Pension Act similar to section 18 of the
War Veterans Allowance Act to deal with cases where it appears to the Commission that there
had been a deliberate disposal of property for the purpose of qualifying for a dependent parent
award ;
(e) that, having regard for section 40 (1) of the Pension Act which provides that no person shall be
awarded more than one pension in respect of death, the Commission reconsider the legality of
its decision to permit an award to a dependent parent of a second pension in respect of the
death of a child after the rights to a pension awarded in respect of the death of another child
have been lost under the terms of section 45 (2) of the Act.
46. wab veterans allowances. The Committee made the following recommendations (see
paragraph 91 of this Report) :
(a) the Committee, after taking note of the increasing number of overpayments arising mainly from
veterans making false or misleading statements, and of the fact that, although 80 such cases had
been referred to the Board by the Auditor General in 1962 and 1963, in none of these had legal
action been instituted, recommends that all cases of deliberate deception which come to notice be
vigorously prosecuted ;
(b) that the Act should be amended to recognize mortgages receivable and agreements for sale as
either personal property or an interest in real property. In the meantime, where it appears to
the Board that the terms of a mortgage receivable or agreement for sale are unrealistic in relation
to the life expectancy of the individual and the going market rates, the Board should deem the
return from these assets to be at a reasonable monthly rate;
(c) that in cases where the presence of a child is the reason for an award at married rates, the income
of the child, except income specifically exempted under the Act, be taken into account in
determining the amount of the award.
47. amendments to the customs act and the excise tax act. The Committee made the
following recommendations:
(a) Release of goods under Customs Collector's permission —
that the practice of the Department in releasing goods prior to the passing of a Customs
entry and payment of duty be given statutory sanction by means of appropriate amendments
made to sections 22 and 79 of the Customs Act.
(b) Sales of goods unclaimed at Customs —
that the practice of the Department in waiving all or part of whatever storage charges are
applicable in order that at least the duties may be recovered be given statutory sanction
by means of an appropriate amendment to section 23 of the Customs Act.
(c) Duties and taxes on surplus United States Government property sold in Canada —
that an amendment be made to the Customs Act or to the Customs Tariff Act to provid<
statutory authority for the establishment of a composite rate to be applied to the proceed
of all sales in Canada of United States Government property by Crown Assets Disposa
Corporation.
(d) Determination of 'sale price' for sales tax purposes—
that an amendment be made to the Excise Tax Act designed to give statutory sanction to th
existing scheme of valuation followed by the Department of National Revenue in authorizin
manufacturers by regulation to compute the sales tax on less than the actual sale price.
48 . general election expenditures. The Committee noted the practice followed over th
years of making accountable advances to election officers for the payment of offic
rental and various other expenses incurred in connection with an election. It noted tlu
the Chief Electoral Officer in his report to the Speaker of the House of Commons on tr
AUDITOR GENERAL'S REPORT 167
1962 general election had recommended that the Canada Elections Act be amended
to provide for the payment of an accountable advance to an election officer, limited to an
amount which might be necessary to defray such office and other incidental expenses
as may be approved under the tariff of fees, costs, allowances and expenses.
The Committee recorded its support of this recommendation by the Chief Electoral
Officer and expressed the hope that the amendment will be considered by Parliament
at an early date.
49. accounts not examined BY the auditor general. The Committee noted that although
this officer of Parliament is the auditor of the majority of the Crown corporations, it has
not been the practice of successive governments to appoint the Auditor General the
auditor of seven of the Crown corporations and other public instrumentalities and that
therefore their accounts have not been examined and reported upon by him to the House.
The Committee expressed its belief that it would be in the best interests of Parliament
in its control of public funds were the Auditor General empowered to audit the accounts
of all of the Crown corporations, agencies and public instrumentalities owned or
controlled by the Crown, wherever they may be, and to report thereon to the House.
The Committee therefore recommended (see paragraph 133 of this Report) :
(a) that the Auditor General be appointed either the sole auditor or a joint auditor pursuant to
subsection (2) of section 77 of the Financial Administration Act, of each Crown corporation,
agency and other public instrumentality in respect of which other auditors have been or may
be appointed;
(6) that in cases where such other auditors are appointed, they function as joint auditors with the
Auditor General, and that such appointments be made by the government acting on the advice
of the Auditor General.
50. audit of the office of the auditor general. The Committee noted that pursuant to the
provisions of section 75 of the Financial Administration Act, an officer of the public
service nominated by the Treasury Board examines and certifies to the House of
Commons in accordance with the outcome of his examinations the receipts and disburse-
ments of the Office of the Auditor General.
The Committee recommended that this section of the Financial Administration Act be
amended to provide that the receipts and disbursements of the Office of the Auditor
General be examined by a qualified person nominated by Parliament through its
Standing Committee on Public Accounts, and that such person should report thereon
to the House of Commons. Reference is made to paragraph 6 of this Report.
168 AUDITOR GE1SER4VS REPORT
APPENDIX 2
NON-PRODUCTIVE PAYMENTS NOTED IN THE AUDIT
FOR THE FISCAL YEAR ENDED MARCH 31, 1964
(See paragraph 94)
1. SETTLEMENT ARISING OUT OF DISMISSAL OF EMPLOYEE WITHOUT THE AUTHORITY OF THE
governor in council. — In 1956 an auditor employed by the Unemployment Insurance
Commission was notified of his dismissal because of irregularities in his travelling
expense accounts. His appeal against dismissal was unsuccessful.
It was a provision of section 52 of the Civil Service Act, R.S. 1952 (since repealed) that
no deputy head, officer, clerk or employee "whose appointment is of a permanent nature,
shall be removed from office except by authority of the Governor in Council". In this
case the Unemployment Insurance Commission neglected to obtain this authorization.
Counsel for the dismissed auditor made representations to the Commission claiming
damages for illegal dismissal but the claim was rejected.
In May 1962 the dismissed employee submitted a Petition of Right in the Exchequer
Court of Canada requesting an order declaring him to be still an employee of Her
Majesty and entitled to such pay and allowances as had accrued since July 5, 1956
(the effective date of his dismissal) , reimbursement for loss of income of $22,675,
damages of $25,000 for unlawful interference with his employment with Her Majesty,
reimbursement of his costs of and incidental to the petition, and such further and other
relief as the Court deemed just.
After duly considering the merits of the claim, the Department of Justice recommended
that it would be in the Commission's interests to effect an out of court settlement with
the petitioner. With the concurrence of the Commission and upon the dismissed employee
submitting a formal release and discharge, payments of $4,000 to him and $500 to his
solicitors were made in final settlement in February 1964.
2. expenditures on housing projects subsequently abandoned. — In 1961 the Treasury
Board approved in principle a proposal to enter into a bulk leasing arrangement with a
contractor for the provision and operation of 50 housing units for occupancy by married
Army personnel at Carp, Ont. The location was subsequently changed to Almonte, Ont.
Treasury Board authority was sought to pay a utility allowance of $20 per month to
each of the eventual tenants. However, the Board did not approve this proposal and in
May 1963 the project was abandoned. In the meantime, $12,391 had been expended for
purchase of land and $6,627 for costs of survey, soil investigations, and services and
heating design. The land in question has since been turned over to Central Mortgage and
Housing Corporation for disposal.
Similar authority was obtained in 1961 for 15 rental housing units at Perth, Ont. The
necessary land was purchased at a cost of $7,432. Subsequently, when it developed that
no acceptable proposal from entrepreneurs could be obtained except at rentals above
those for accommodation already available in the area, the project was abandoned.
Additional costs relating to site survey, consultant services and plans amounting to $381
were also absorbed. Central Mortgage and Housing Corporation has been asked tc
dispose of the land.
In 1962 the Treasury Board approved in principle a proposal to proceed with th(
development of a rental housing project of 80 units on a bulk lease basis at Red Deer
AUDITOR GEJSERAUS REPORT 169
Alta., for occupancy by Army personnel. In 1963 the project was abandoned. However,
expenditure had been incurred for a land option, site survey and design of services
amounting to $10,257.
3 . additional cost due to faulty specifications and drawings. — In April 1957 a contract
for the production in Canada of 7,500 signal flares for the Royal Canadian Air Force
at a firm price of $54,304 was awarded by the Department of Defence Production.
Subsequent to the start of production, the contractor and the R.C.A.F. design authority
began to find inaccuracies and conflicts in the drawings and specifications and as
production progressed some 24 design changes were required. Later it was determined
that the drawings and specifications which had originated in the United States had
never been used for production.
The cumulative effect of the design changes increased the cost and extended the period
of production during which the product became obsolete for operational use.
In May 1963 the contract was terminated by reducing the quantity from 7,500 to 4,920
flares. The cost of the numerous design changes with attendant delays resulted in
payment to the contractor of $28,868 more than the initial firm price for 7,500 flares.
4. contract for magnetrons cancelled. — In 1959 a contract for 630 magnetrons for the
Royal Canadian Air Force was awarded at a ceiling price of $454,545 by the Department
of Defence Production. A problem arose when certain tubes manufactured to the
specifications stipulated in the contract failed in use. The specifications for the
magnetrons had been obtained from the United States Air Force and although the
design was changed by the Canadian contractor in an attempt to improve the product,
some of the magnetrons, which still met the specification requirement, continued to fail
in use. After 432 units had been received and accepted, the Air Force refused further
deliveries.
The contractor, having manufactured or partly manufactured the 630 units in accordance
with the specifications, claimed and was paid the full ceiling price.
5. additional costs due to construction delays, Ottawa. — In July 1961 Defence Con-
struction (1951) Limited awarded a firm price contract in the amount of $179,000, later
amended to $194,312, for the construction of a biological evaluation building for the
Defence Research Board at Shirley Bay. The contract was to be completed by the end
of November 1961. However, the building was not taken over until May 1962.
During the course of the contract, the work was delayed mainly because of (a) a
temporary lack of electrical power, (o) experiments with specified materials which
proved to be unsatisfactory, (c) the requirement for all shop drawings to be handled
twice, once by Defence Construction (1951) Limited engineering services and once by
the consultant, and (d) certain design changes made during the progress of the work.
The contractor claimed for additional costs incurred as a result of the above delays
and was paid $8,042 in March 1964.
6. ADDITIONAL COSTS DUE TO DELAYS IN CONSTRUCTION OF HANGARS AT GREENWOOD, N.S. AND
summerside, p.e.i. — Contracts were awarded to the same construction firm by Defence
Construction (1951) Limited in February and March 1959 to construct one anti-
corrosion hangar and one readiness hangar at RCAF Station, Greenwood, N.S., and a
standard maritime readiness hangar and standard maritime anti-corrosion hangar at
RCAF Station, Summerside, P.E.I. , at firm prices as amended of $837,839 and $829,000
respectively.
170 AUDITOR GENERAL'S REPORT
Immediately after the award of contracts, a number of modifications to the structural
steel design were proposed by the steel fabricator. These modifications which were
finally accepted required lengthy consideration. As a result, the first submission of
erection diagrams, scheduled for approval by March 20, 1959, was not made until
April 10, 1959. The manner in which shop drawings were dealt with by the contractor,
Defence Construction (1951) Limited, and the consultant gave rise to further delays.
As a result, final approval was not given to the steel fabricator until June 11, 1959.
The commencement of the erection of the first hangar at Greenwood was thus delayed
two months. The second hangar at Greenwood and the two at Summerside were delayed
up to three months because of the disruption of fabricating schedules. The contractor
was forced into winter work and additional costs of $36,733 and $32,087 were claimed.
The claims were negotiated and settlements of $17,870 and $15,360 were paid to the
contractor.
7. ADDITIONAL COSTS RESULTING FROM CONSTRUCTION DELAYS, NORTH BAY, ONT. — In 1959 a
contract was awarded by Defence Construction (1951) Limited for the construction of a
communications installation at North Bay, Ont. The final cost of the project, amounting
to $17,668,360, included $149,883 paid to the contractor in the year under review in
compensation for additional costs and interest arising from the prolongation of the
contract and from carrying out the work as directed by the Crown. The prolongation of
the work was primarily the result of (a) the time required to make a policy decision
whether to cancel or complete the project, (b) the complexity of the project which
caused difficulties in scheduling sub-contract work, and (c) delay in providing the
contractor with working construction drawings.
8. CONSULTANTS' FEE IN RESPECT OF ABANDONED WORK, CAMP WAINWRIGHT, ALTA. — Defence
Construction (1951) Limited entered into a contract in 1951 with a firm of consulting
engineers for the preparation of contract drawings and specifications and for supervision
of construction of water supply, sewerage system and additional services for Wainwright
Military Camp. The construction work was planned in three stages. Stage I was
completed and the consultant was paid for services rendered in accordance with the
contract. Due to a change in military requirements Stages II and III were not
proceeded with; however, certain work related to these stages had already been carried
out by the consultants and in the year under review $49,299 was paid in respect of this
work.
9 . COST OF DESIGN OF AIRCRAFT FUEL STORAGE FACILITIES NOT PROCEEDED WITH, SYDNEY, N.S. —
By agreement dated January 12, 1962 an engineering firm was engaged by Defence
Construction (1951) Limited to design aircraft fuel storage facilities for the Navy at
Sydney, N.S. Construction of the project was deferred indefinitely, and since all design
services were completed the firm was paid $25,353, including a fee of $19,500 for the
design and preparation of working plans and specifications representing 3% of the
estimated construction cost of $650,000.
10. COST OF ABANDONED FRENCH TRANSLATION OF EXHIBITION CATALOGUES. — In Order to Save
time in the preparation of the catalogue for the Lawren Harris exhibition, the National
Gallery of Canada had the French translation prepared in Vancouver where the
exhibition was being assembled. This translation was found to be unsatisfactory by the
Queen's Printer and the Bureau for Translations and the catalogue was withdrawn from
sale until a new French translation could be obtained. The cost of inserting the new
translation, together with the cost of unsaleable catalogues, was approximately $1,900.
AUDITOR GENERAL'S REPORT 171
11. loss due to inadequate shipping procedures. — In 1962 the Department of Northern
Affairs and National Resources entered into a contract which provided for the supply
and installation of fuel oil storage tanks and distribution systems at various northern
locations. The Department assumed responsibility for the shipment of the contractor's
equipment and material to the work sites. Many months after delivery to the several
locations, the Department was informed of shortages and a check at each site was made
by personnel of the Department and of the contractor. Subsequently it was necessary
for the contractor to purchase additional material to replace the deficiencies. Due to
inadequacies in the shipping procedures in effect in 1962, the Department was unable to
ascertain the facts of the situation and the contractor was reimbursed $14,298 for
replacement material purchased by him and $6,745 for his costs in connection with
checking the material at the sites.
12. loss of fuel oil, fort mcpherson, n.w.t. — Fuel oil storage facilties and an associated
pipe line system for delivering oil to government departments and a few private
consumers at Fort McPherson are operated by the Northern Canada Power Commission
on behalf of the Department of Northern Affairs and National Resources. In December
1963 a main valve in the trunk line used to move oil from dockside to the main storage
tank was left open in error permitting 33,674 gallons of oil, valued at $9,150, to enter
a pipe line leading to the premises of a consumer and to be lost due to a defect in that
pipe line. The Commission issued a billing for the loss to the Department of Northern
Affairs and National Resources and has since been reimbursed the amount of the loss
which has been charged to the 1964-65 departmental appropriation (Vote 45) for
Northern Administration.
13. additional costs due to construction delay, Hamilton, ont. — Early in 1959 the
Department of Public Works called for tenders for the construction of a length of wharf
face wall of interlocking steel sheet piling at Hamilton. When the tenders were examined
in March it was found that the lowest tender, in the amount of $547,762, involved the
use of steel sheet piling of foreign manufacture for three different sections of the project.
One section required the use of piling of comparatively light strength priced at $58,175.
As it was known that a Canadian manufacturer had plans for the early rolling of piling
which would meet the requirements of this lightest section, arrangements were made
for the substitution of the Canadian product and in June 1959 a contract was awarded
on this basis at an additional cost of $10,024.
On August 31, 1959 the Canadian piling supplier informed the contractor that it would
be unable to supply the required steel. In order to proceed with the project it was neces-
sary to revert to the use of foreign steel and the contractor did this on the understanding
that the Department would pay for the additional costs involved. As the contractor had
originally estimated that he would be able to complete the work during the summer
construction season of 1959 and, because of the lengthy delay, was required to work
under winter conditions, it was necessary in the final settlement for the Department to
give recognition to costs resulting from winter conditions, high water in the spring of
1960, increased labour costs, etc. In May 1963, following lengthy negotiations, the
contractor was paid $77,044, of which $72,824 may be regarded as non-productive, in
settlement of his claim for costs stemming from the delays which he had encountered.
14. additional costs due to construction delay, lewisporte, nfld. — In 1960 the Depart-
ment of Public Works awarded a contract for the construction of a railway wharf and
shed at Lewisporte for the Department of Transport. The plans called for the driving of
steel sheet piling. After this phase of the operation was under way the contractor found
95480—13
172 AUDITOR GE1SERAVS REPORT
that he could make only very slow progress and it became apparent that the subsoil
investigation commissioned by the Department before the plans were prepared did not
indicate conditions as difficult as were encountered on the site. After many weeks of
attempting to achieve the required results with normal piledriving equipment, the
contractor was able to accelerate progress by a revised method.
The extended time required for the piledriving caused delay in starting other phases of
the work and in October 1963 the contractor was paid $41,449 to compensate him for
the rental of equipment which he had put on the site in anticipation of reasonable
progress in piledriving and which had remained idle because of the delay.
15. ADDITIONAL COSTS DUE PRIMARILY TO CONSTRUCTION DELAY, ST. JOHN'S, NFLD. — A Contract
for the construction of a post office building at St. John's was entered into in 1957.
Excavation for the basement revealed an underground spring. In order to overcome its
hydrostatic pressure it was necessary to redesign the boiler room floor slab. Work on
the project was halted for six weeks while the revised design was prepared, and the
final payment to the contractor during the year under review included $18,724 for costs
attributed to the delay.
Owing to the increased thickness of the hydrostatic floor slab referred to above, the
contractor was ordered to increase the elevation of the first floor slab. After basement
walls had been poured to the increased elevation, it became evident that the elevation
created problems in suiting the entrances to street grades. When an analysis of the
minimum height requirements of the boilers and ancillary equipment indicated that the
equipment could be accommodated without increasing the ceiling height to compensate
for the hydrostatic floor slab, the contractor was directed to reduce the ceiling height to
that provided by the original design. An additional cost of $4,646 was incurred in
connection with this reduction.
16. additional costs due to construction delay, Ottawa. — In our Report for 1960-61
reference was made to a payment of $12,737 by the Department of Public Works to'
consultants for revised plans, subsequently not used, covering a number of structural
changes to an Ottawa building (now the Sir Charles Tupper Building) . Completion of the
project was delayed by the proposed changes and also by alterations resulting from a
decision to provide accommodation in the building for the Department of Fisheries.
In November 1963 the contractor was paid $22,962 as compensation for extra costs
arising from the delays to which his contract was subjected.
17. ADDITIONAL COSTS DUE TO CONSTRUCTION DELAY, HALIFAX, N.S. — In 1959 a firm of
consultants was engaged by the Department of Public Works to prepare plans and
specifications for and to supervise the construction of additions and alterations to a
public building at Halifax. In March 1960 the consultants were requested to extend their
commission to the designing and supervising of installation of mail handling equipment,
provided that an engineering consultant acceptable to the Department be engaged by
the firm to deal with this phase of the work. When the consultants sought permission
to have the additional assignment carried out by their own staff, the Department withheld
permission until they had produced evidence of their capability. Early in 1961, on the
basis of preliminary design work submitted, the conclusion was reached that the firm
was not capable of doing the work satisfactorily, and another firm was engaged to deal
with the mail handling equipment.
In the meantime, the building contract had been awarded in August 1960 and the work
had been progressing favourably. The delay in completing plans for the mail handling
equipment resulted not only in a number of extensive changes in the contractor's work
AUDITOR GENERAL'S REPORT 173
but also in the acceptance by the Department during the year under review of
responsibility for costs of $20,988 incurred by him during a period of 21 weeks when he
was unable to proceed as planned.
18. ADDITIONAL COSTS DUE TO CONSTRUCTION DELAY, HAMILTON, ONT. — In May 1961 the
Department of Public Works entered into a contract for the construction of an addition
and for alterations to the postal terminal at Hamilton. Earlier the Department had
received Treasury Board approval for the acquisition of an experimental conveyor to be
installed on the premises but due to delays in the preparation of final drawings and
layout for the conveyor the contract for the equipment was not awarded until January
1962. A consequence was that it was necessary to limit the construction contractor's
scope of operations until the layout for the facilities had been completed. Relocation of
the conveyor shaftway and revisions to the system further contributed to the delay.
During the year under review the contractor was paid $9,931 to compensate him for
costs incurred because of the delay.
19. COST OF DELAY IN CONSTRUCTION OF BUILDING FOR THE POST OFFICE DEPARTMENT, OTTAWA.
A contract for the construction of a laboratory and workshop building for the Post Office
Department was entered into by the Department of Public Works in July 1959.
Although no indication of the requirement had been given during the design stage,
in April 1960 the Post Office Department requested a modification of the plans to permit
the installation of a sawdust extractor which was to be transferred from its existing
location. In July 1963, after the Department of Public Works had confirmed that
required revisions to the structure had delayed the contractor's operations by some ten
weeks, he was paid $6,628 in compensation.
20. COSTS RESULTING FROM CONSTRUCTION DELAYS, INCOME TAX COMPUTER CENTRE, OTTAWA.
In 1961 the Department of Public Works awarded a contract for the construction of the
Income Tax Computer Centre at Ottawa. During the course of the work a number of
circumstances delayed the contractor for about three months. The principal causes were:
(a) After the award of a contract for computer room equipment (by the Department
of National Revenue) it was found that preliminary information as to the
cooling load for the equipment was inaccurate. Work was delayed while
accurate information, plans and equipment were obtained.
(6) The original tender documents did not provide for the installation of a canteen
in the building. The decision in 1962 to make provision for these facilities
delayed the contractor for several weeks.
In September 1963 the contractor was paid $6,166 to compensate him for expenses
resulting from the delays.
21 . COSTS OF DELAY IN CONSTRUCTION OF EXTENSION TO HEATING PLANT, MONTREAL, QUE. — In
May 1961 the Department of Public Works entered into a contract for the construction of
an extension to the central heating plant of a hospital in Montreal for the Department of
Veterans Affairs. Earlier a contract had been awarded to another contractor for the
supply and installation of three boilers in connection with the project. Although steps
were taken to co-ordinate the operations of the two contractors, it later developed that
the time allowed for the placing of two of the boilers in operation was unrealistic, and
the work of the construction contractor was delayed for ten weeks. In July 1963 he was
paid $1,975 to compensate him for costs incurred during this period.
95480— 13J
174 AUDITOR GENERAL'S REPORT
22. COST OF TEMPORARY SUSPENSION OF CONSTRUCTION CONTRACT, ST. NICOLAS, QUE. — In
May 1962 a contract was awarded by the Department of Public Works for the
construction of a protection wall at St. Nicolas. After work was under way, a nearby
property owner alleged violation of his rights, and activities were suspended for about
six months pending clarification of the Department's position in the matter. In May 1964
the contractor was paid $2,480 as compensation for costs incurred by him as a result
of the delay.
23. consultants' fees in respect of abandoned work, frobisher, n.w.t. — In 1959 a group
of architectural and engineering firms was engaged to prepare preliminary studies and
estimates of costs which it was expected would lead to the preparation of plans and
specifications for the development of a townsite and the construction of various buildings
at Frobisher. Early in 1962 a group consisting mainly of the same personnel who had
undertaken the earlier assignment was retained to plan for and supervise the construction
of the various facilities which were to form the new town.
Two construction phases were contemplated, the first to include a number of buildings,
roads, utilities, and site clearance for the second phase which was intended to include
the construction of other buildings, at a total estimated cost of $12,700,000. In June 1962
the Department of Public Works entered into a contract for the first phase. In 1963,
when planning for the second phase had reached the stage where the Department would
shortly have been in a position to call for tenders, the Strategic Air Command (SAC) of
the United States Government, which had established a refuelling base at Frobisher,
decided to withdraw its operations. Under the terms of the Canada-United States
agreement respecting SAC operations, the facilities at Frobisher, which included a
number of buildings, became available for use by the Government of Canada.
Consequently, it was decided to defer the second phase of the construction program
pending an examination of the SAC facilities in relation to the accommodation require-
ments of the several departments involved.
In February 1963 the consultants were instructed to stop work on the preparation of
plans and specifications for the second phase of the development program and in the
following December they were informed that this phase was being abandoned. Payments
totalling $194,982 were made to them up to March 31, 1964 on the basis of completion
of 85% of the design work on an estimated cost of $8,875,000 for phase two.
24. consultants' fee in respect of abandoned work, edmonton, alta. — In 1960 the Depart-
ment of Public Works engaged a firm of architects to prepare plans and specifications and
to supervise the construction of a postal terminal at Edmonton. They proceeded with a
number of preliminary design studies based on a multi-storey addition to the existing
terminal building, which itself was to be completely renovated. The studies included
both architectural and mail handling designs and layouts. In 1962 this concept was
abandoned for economic and functional reasons in favour of a two-storey addition to
house mail handling operations, with alterations to the existing building being confined
to changes necessary to provide administrative and office areas. During the year under
review the consultants were paid $18,000 for services rendered in connection with the
original concept.
25. consultants' fee in respect of abandoned work, Toronto, ont. — In 1961 consultants
were engaged by the Department of Public Works to prepare plans for and to supervise
construction of a new postal station at Toronto. In 1963, when the Department decided
AUDITOR GENERAL'S REPORT 175
to defer further action indefinitely, the engagement was terminated and the consultants
were paid $1,704 for services rendered under the "abandonment of work" provision of
their terms of employment.
26. costs resulting feom abandoned expropriations, hull. que. — Certain properties in
Hull were expropriated by the Department of Public Works in 1952 to serve as a site
for a new public building and to implement recommendations of the National Planning
Committee with respect to the area. In 1954, after discussions with the Federal District
Commission (now the National Capital Commission), the expropriations were abandoned
with respect to all of the property except that required for the building site.
The owner of a substantial portion of the expropriated area operated a hotel therein and
after the abandonment proceedings he took legal action to obtain compensation, claiming
that during the period of about 22 months that the expropriation stood he had been
compelled to operate on a day-to-day basis and plans for the reconstruction and
enlargement of the hotel had been shelved. In June 1962, the Supreme Court of Canada,
on appeal from an earlier Exchequer Court action, awarded $24,480 compensation for the
expropriation and revesting of the property. This amount, together with interest of
$10,669, and costs of $9,108 not relating entirely to the revested area, was paid during
the year under review.
27. cost of unused office space, Halifax, n.s. — The Department of Public Works entered
into a lease for a term of three years, effective October 1, 1961, to provide accommoda-
tion for the Department of Finance at Halifax. In December 1962 the premises were
vacated as a result of a consolidation of services in another building. Although
immediate steps were taken towards a cancellation of the lease, it was not terminated
until September 30, 1963, when the lessor accepted $4,592 in full and final settlement.
This amount, together with the rent of $7,271 paid for the period prior to that date
during which the premises were unoccupied, resulted in a total payment of $11,863 in
respect of the unused accommodation.
28 . cost of vacated post office space, north edmonton, alta. — The Department of Public
Works leased space in a building at North Edmonton for the use of the Post Office
Department for a ten-year term commencing June 1, 1954 at the rate of $2,200 per
annum. The premises were vacated on January 15, 1962. Because the amount requested
by the lessor to terminate the lease at the time would have represented little saving
over continuing to pay rent to the completion of the term, the Department elected to
attempt to sub-let the space. Its efforts were unsuccessful until February 1, 1964, when
an offer of $50 per month was received and accepted. Payment of rent to January 31, 1964
and a quit lease payment of $467 for the final four months of the term resulted in a total
of $4,959 being paid for the period during which the space was not occupied by the
Crown.
29. COST OF DELAY IN APPROVAL OF STRUCTURAL PLANS, KENTVILLE, N.S. — In September 1961
the Department of Public Works awarded a contract for the construction of a federal
building at Kentville which was accepted by the Department in October 1962. During
the year under review the structural steel sub-contractor was paid $8,498 as compensa-
tion for a construction delay caused by late approval of shop drawings relating to an
element of the steel work. Although the Department felt that the situation had stemmed
from an error in judgment on the part of the consultant architect, no assessment was
made against him because of his otherwise satisfactory performance.
176 AUDITOR GENERALS REPORT
30. cost of delay in demolition of building, st. John's, nfld. — In September 1959 the
Department of Public Works awarded a contract in the amount of $6,990 — subsequently-
increased to $7,743 — for the demolition of a building in the St. John's harbour area. The
site was required for the construction of a marine agency depot for the Department
of Transport.
Although demolition was required by late November 1959, it was not completed until the
following October due to a delay for which the contractor was not responsible. As the
delay resulted in the cancellation of a sale of salvaged material which he had negotiated
prior to tendering and led to a substantial loss on his undertaking, the contractor sought
redress. In May 1963 he was paid an additional amount of $12,000 in settlement of
approximately 50% of his claim.
Prior to demolition the building was being used by the Province of Newfoundland, on a
"care and maintenance" basis, as a vocational training school. Although the Province
was notified in January 1959 that vacant possession would be required by the following
July, it continued to use the premises until late April 1960. The Province was advised by
the Department of Public Works in November 1959 that financial responsibility for the
delay was regarded as a provincial matter, but no further action was taken in this regard.
31 . COST OF TERMINATING CONTRACT FOR CONSTRUCTION OF POST OFFICE BUILDING, ST. ISIDORE DE
dorchester, que. — In February 1963 the Department of Public Works awarded a
contract for the construction of a post office at St. Isidore de Dorchester at a cost of
$14,690. Two months later, after work had commenced, the local municipal council
requested that the contract be cancelled. The contractor was instructed by the Depart- j
ment to cease operations forthwith and in the following month he was informed that
the contract was terminated. He was later paid $4,000 in settlement of a claim for work
completed and other expenses incurred in connection with the cancelled project. The
site of the proposed building, acquired in 1962 at a cost of $5,000, is being retained by
the Department to meet a possible future construction requirement.
32. cost of access road, Chatham point, b.c. — The Department of Transport maintains
a light and fog alarm station at Chatham Point, B.C., which prior to 1963 was serviced
by departmental Coast Guard ships. When the Department decided to establish a
meteorological observing station at the same location, it was considered in 1961 that
economies would result from the construction of an access road to the site to service the
expanded facilities. After work on the access road was well under way, a change in
plans for the area led to the cancellation of the meteorological station project at
Chatham Point. The road, completed at a cost in excess of $55,000, is therefore utilized
to provide access by land to a lightstation staffed by only two employees. It is not
evident that this outlay would have been incurred for that purpose only.
33. COST OF unsuccessful attempt to reconstruct lock entrance wall, bobcaygeon, ont.
— In 1961 the Department of Transport entered into a contract for the reconstruction
of an entrance wall to a lock on the Trent Canal at Bobcaygeon, at an estimated cost
of $34,262. The plans and specifications for the work were prepared by departmental
engineers. The required method of carrying out the work was to place a cofferdam
across the canal downstream from the area where the wall was to be rebuilt and to
de-water the area between the cofferdam and the lock so that the rebuilding of the wall
might be carried out in the dry. Although the contractor was able to complete a portion
of the work, for which he was paid $8,991, he was unable to proceed with the major
part because of inability to de-water the working area and in August 1962 the
AUDITOR GENERAL'S REPORT 177
contract was terminated. During the year under review, after the Department had
determined that it was not economically feasible to place and maintain a cofferdam
as had been originally set out in the specifications, the contractor was paid an additional
$30,631 to compensate him for costs incurred in his abortive attempt to complete the
contract.
The Department subsequently undertook to complete the work by a method which
would allow the wall to be reconstructed without having the area de-watered, at an
estimated cost of $45,000.
34. architects' fee in respect of abandoned work, Montreal, que. — In 1961 architects
were engaged to prepare plans and specifications for, and supervise construction of, an
addition and alterations to the Queen Mary Veterans Hospital at Montreal. After the
architects had completed the sketch plans and preliminary drawings they were instructed
to take no further action on the project. Based on an estimated cost of construction
of $9,142,190 and in accordance with their terms of engagement, the architects were
paid $110,047 ($99,000 in 1962-63) for services in connection with the project. Whether
the project will be undertaken at some future time and use made of the plans and
specifications is not known.
35. cost of unused plans for hospital alterations, London, ont. — In 1957 consultants
were engaged to prepare plans and specifications and to supervise the construction
of a new wing and alterations to the surgical and X-ray departments at a
London hospital for the Department of Veterans Affairs. When the plans and specifica-
tions were nearing completion the Department decided to eliminate alterations to the
surgical and X-ray departments because it was felt that to carry out these alterations
while the construction of the new wing was in progress would cause too much disruption
of the functions of the hospital. After the new wing had been substantially completed,
the consultants were re-engaged in connection with alterations to the X-ray department
but the new concept envisaged substantial reductions both in scope and cost from what
had been earlier contemplated. The original design was therefore abandoned and in
August 1963 the consultants were paid $23,465, on a quantum meruit basis, for services
rendered in the preparation of the unused plans.
178
AUDITOR GENERAL'S REPORT
APPENDIX 3
SUMMARY OF EMPLOYEES OF THE PUBLIC SERVICE,
BY DEPARTMENTS, CROWN CORPORATIONS AND OTHER INSTRUMENTALITIES
Authorized and on Strength as at March 31, 1964
with Comparable Figures as at March 31, 1963
Employees authorized
March
1963
March
1964
Increase
(Decrease)
Name of Department, Crown Corporation or
Other Instrumentality
m
Employees on Strength
March
1963
March
1964
Increase
(Decrease)
431
439
4,003
3,940
2,064
2,056
1,443
1,491
1,127
1,183
89
63
930
942
228
255
10, SIS
10,369
15
16
180
180
40
40
20
20
77
11
97
31
205
203
217
217
2,203
1,987
2,979
2,910
5,60b
5,317
10
11
132
121
480
530
99
89
47
47
45
43
813
8 J,l
458
491
187
181
927
1,076
75
75
1,647
1,823
2,439
2,537
109
110
12
12
2,560
2,659
(63)
(8)
48
56
(26)
12
27
54
1
(66)
(66)
(2)
(216)
(69)
1
(11)
50
(10)
(2)
33
(6)
149
176
1
99
DEPARTMENTS (Note 1)—
Agriculture —
Administration Branch
Research Branch
Production and Marketing Branch.
Health of Animals Branch
Prairie Farm Rehabilitation
Administration
Prairie Farm Assistance
Administration
Board of Grain Commissioners
Canadian Government Elevators..
Atomic Energy Control Board.
Auditor General's Office
Board of Broadcast Governors.
Chief Electoral Officer —
Permanent
Casual
Citizenship and Immigration-
Administration
Citizenship Branch
Immigration Branch
Indian Affairs Branch
Civil Service Commission —
Commissioners and Staff
Executive Secretary (Administration and Personnel)
Operations Branch
Advisory Services and Appeals Branch
Pay and Standards Branch
Pay Research Bureau
Defence Production —
Administration and Offices Abroad
Financial Branch
Production Branches and Regional Purchasing F ranch
Emergency Supply Planning Branch
External Affairs —
External Affairs
External Aid Office
International Joint Commission.
399
3,350
1,916
1,400
962
86
866
215
9,194
14
157
37
18
77
95
180
188
1,910
2,694
4,972
9
112
429
75
34
41
700
414
175
877
60
1.526
2,278
87
10
2,375
386
3,250
1,908
1,431
991
61
834
231
9,092
14
160
36
19
11
175
182
1,726
2,698
4,781
10
87
480
77
36
44
734
452
166
952
69
1,639
2,358
98
11
2,467
AUDITOR GENERAL'S REPORT
SUMMARY OF EMPLOYEES OF THE PUBLIC SERVICE— Continued
179
Employees authorized
March
19G4
Increase
(Decrease)
Name of Department, Crown Corporation or
Other Instrumentality
Employees on Strength
March
1963
March
1964
Increase
(Decrease)
328
155
385
3,302
342
150
429
36
321
204
35
22
19
4
10
5,742
91
181
736
328
224
674
192
476
646
204
64
14
1,596
17
142
112
348
144
3,125
52
402
4,071
769
11,562
12,331
191
945
61
1,197
27
33
(95)
3
(11)
(48)
50
(15)
40
1
10
6
(1)
1
15
(3)
4
14
18
1
142
3
45
39
87
576
665
83
23
(2)
104
DEPARTMENTS (Continued)
Finance —
Administration
Comptroller of the Treasury —
Headquarters
Regional Offices
Treasury Offices
Audit Services Branch
Cheque Adjustment Division
Central Disbursement Division
Central Services Branch
Securities Deposit Division
Royal Canadian Mint
Superannuation Branch
Tariff Board
Guaranteed Loans Division
Government Switchboard
Inspector General of Banks
Municipal Development and Loan Board
Fisheries —
Administration
Field Service Administration
Conservation and Development Services
Inspection Services
Miscellaneous Services
Fisheries Research Board
Forestry —
Administration Branch
Forest Research Branch
Forest Entomology and Pathology Branch
Forest Products Research Branch
Maritime Marshland Rehabilitation Administration
Agriculture Rehabilitation and Development
Governor General and Lieutenant Governors
Industry
Insurance
Justice —
Administration
National Parole Board
Penitentiaries
Trade Marks Office
Patent and Copyright Office
Labour —
Departmental Administration and administration of
various Acts
Unemployment Insurance Commission
Legislation —
Senate
House of Commons
Library of Parliament
270
15
96
304
105
2,897
46
324
3,676
614
10,163
10,777
108
922
58
286
119
122
320
341
3,144
2,980
306
324
135
126
43
—
329
384
30
26
276
310
181
174
28
32
19
19
18
19
3
4
—
7
5,221
5,154
77
76
159
164
710
716
308
317
192
196
608
655
2,054
2,124
159
167
445
453
611
617
175
187
56
45
—
11
1,446
1,480
16
125
100
314
111
3,062
45
332
3,864
668
10,693
11,361
191
945
59
1,195
16
3
21
(164)
18
(9)
(43)
55
(4)
34
(7)
4
1
1
7
(67)
(1)
5
6
9
4
47
70
8
6
12
(11)
11
S4
1
125
4
10
6
165
(1)
8
188
54
530
584
83
23
1
107
180
AUDITOR GENERAL'S REPORT
SUMMARY OF EMPLOYEES OF THE PUBLIC SERVICE— Continued
Employees authorized
March
1963
March
1964
Increase
(Decrease)
Name of Department, Crown Corporation or
Other Instrumentality
Employees on Strength
March
1963
March
1964
Increase
(Decrease)
213
711
665
537
413
162
19
164
679
1,420
13,104
18,183
16,111
3,202
52,699
68
214
711
665
541
413
165
19
176
2,904
685
1,420
13,147
18,620
16,216
3,243
53,331
369
380
518
540
3,109
3,124
444
522
896
810
5,336
5,376
440
439
5
6
2,923
2,889
3,368
3,334
362
391
382
249
676
825
62
62
148
150
139
267
6,585
6,365
8,354
8,309
607
591
890
1,597
6,623
6,000
22
22
8,142
8,210
204
213
279
279
56
56
2,476
2,489
107
111
4
3
12
43
437
105
41
11
22
15
78
(86)
40
(1)
1
(34)
(34)
29
(133)
149
2
128
(220)
(45)
(16)
707
(623)
68
13
4
DEPARTMENTS (Continued)
Mines and Technical Surveys —
Administration
Surveys and Mapping Branch
Mines Branch
Marine Sciences Branch
Geological Survey
Dominion Observatories
Dominion Coal Board
Other
National Defence (Civilian Staffs) —
Departmental Administration
Inspection Service
Royal Canadian Navy
Canadian Army
Royal Canadian Air Force
Defence Research Board
National Gallery of Canada
National Health and Welfare — (Note 3)
Departmental Administration
Health Services
Medical Services
Food and Diug Services
Welfare Services
National Research Council, including the Medical
Research Council —
Administration
Medical Research Council
Scientific and Engineering Divisions
National Revenue — Customs and Excise —
Senior Administration
Appraisers
Excise Tax
Port Administration
Customs Inspection and Investigation
Checking, Refunds and Drawbacks
Ports
National Revenue — Taxation Division —
Head Office
Data Centre (Ottawa)
District Offices
Tax Appeal Board
Northern Affairs and National Resources —
Administration
Water Resources Branch
National Parks Branch —
Administration
Operation and Maintenance of National Parks and
Historic Sites and Monuments
Canadian Wild Life Service
189
646
600
433
382
141
17
142
2,550
594
1,264
12,174
16,506
15,225
2,827
48,590
59
188
652
601
474
392
146
17
141
2,611
590
1,193
11,776
16,432
14,897
2,802
47, 690
55
338
335
457
473
2,755
2,748
398
474
763
770
4,711
4,800
383
409
5
6
2,776
2,723
3,164
3,138
303
346
230
233
638
783
59
59
145
147
258
262
5,893
5,855
7,526
7,685
481
500
1,097
1,817
5,617
5,478
20
20
7,215
7,815
174
192
242
235
42
46
2,431
2,056
87
90
AUDITOR GENERAL'S REPORT
SUMMARY OF EMPLOYEES OF THE PUBLIC SERVICE— Continued
181
Employees authorized
March
1963
March
1964
Increase
(Decrease)
Name of Department, Crown Corporation or
Other Instrumentality
Employees on Strength
March
1963
March
1964
Increase
(Decrease)
196
196
419
445
165
165
586
586
62
62
4,550
4,602
1,091
1,131
761
860
659
581
25,544
25,909
28,055
28, 481
106
126
11
11
7
7
113
113
106
106
—
99
14
857
462
145
189
57
121
SOB
310
478
953
427
1,858
1,868
136
185
924
423
30
159
1,857
1,842
2,753
2,746
3,981
3,943
593
575
158
160
9,353
9,266
26
40
99
(78)
365
426
20
99
(14)
105
44
64
108
u)
(26)
(7)
(38)
(18)
2
(87)
DEPARTMENTS (Continued)
Northern Affairs and National Resources — Concluded
Northern Administration Branch —
Administration
Education Division
Welfare and Industrial Division
Northwest Territories and Other Field Services..
Yukon Territory
Post Office-
Headquarters
District Offices
Railway Mail Service
Staff Post Offices
Privy Council —
Privy Council Office
Bureau of Government Organization
Prime Minister's Residence
Emergency Measures Organization
Civil Defence College
Economic Council of Canada
successor to
National Productivity Council
Public Archives and National Library-
Public Archives
National Library
Public Printing and Stationery — ■
Departmental Administration, Purchasing, etc.
Printing Production — Main plant
Outside Printing Production Branch
Re-organized during 1963 as follows —
Canadian Government Printing Bureau — (Directorate of
Printing of the Department of Defence Produc-
tion)
Departmental Administration
Purchasing Stationery and Stores
Printing Production — Main Plant
Outside Printing Production Branch
Queen's Publisher — Publications Branch —
Departmental Administration
Distribution of official documents including print
procurement
Public Works —
General Administration
Maintenance and Operation of Public Buildings and
Grounds —
Ottawa
Other than at Ottawa
Harbours and Rivers Engineering Services
Development Engineering Services
165
399
98
440
47
4,125
970
820
553
25,191
27, 534
96
4
6
93
93
14
131
49
180
440
838
410
1,688
1,647
2,541
3,607
505
143
8,448
156
450
132
493
45
8,895
932
856
498
25,719
28,005
117
6
7
91
98
61
380
134
67
201
124
172
782
407
28
139
1,652
1,620
2,527
3,515
443
139
8,244
(9)
51
34
53
(2)
(230)
(38)
36
(55)
528
471
21
2
1
(2)
5
61
(14)
74
3
18
21
(27)
(14)
(92)
(62)
(4)
(199)
182
AUDITOR GENERAL'S REPORT
SUMMARY OF EMPLOYEES OF THE PUBLIC SERVICE— Continued
Employees authorized
March
1963
March
1964
Increase
(Decrease)
Name of Department, Crown Corporation or
Other Instrumentality
Employees on Strength
March
1963
March
1964
Increase
(Decrease)
650
1,012
13
1,675
63
33
322
124
7
649
616
624
429
52
108
2,304
73
4,206
668
2,433
2,009
496
490
1,674
2,604
699
2,577
2,377
494
90
178
26
16,815
1,321
12,084
380
797
14,582
210,722
465
1,877
294
69
232
69
3,006
649
1,009
13
1,671
63
33
360
137
18
8
619
521
624
446
52
172
12
,428
73
682
2,428
2,075
498
490
1,679
2,655
719
2,585
2,397
494
90
178
26
16. 996
1,319
12,078
380
790
14,567
213,410
461
1,905
361
241
225
109
(1)
(3)
«)
38
13
18
1
70
(95)
17
64
12
124
122
14
(5)
66
2
5
51
20
8
20
181
(2)
(6)
(7)
(16)
(4)
28
67
172
(7)
40
DEPARTMENTS (Concluded)
Royal Canadian Mounted Police-
Headquarters
Land, Air and Training Divisions.
Marine Services
Secretary of State —
Departmental Administration
Companies and Corporations Branch
Bureau for Translations
National Museum
Office of the Representation Commissioner.
Atlantic Development Board
Trade and Commerce —
Departmental Administration
Trade Commissioner Service
Standards Branch
Exhibitions Branch
Canadian Government Travel Bureau
Canadian Participation in the Universal and Inter
national Exhibition, Montreal, 1967
Dominion Bureau of Statistics
National Energy Board
Transport —
Departmental Administration
Marine Services — -
Marine Administration and Marine Works
Marine Operations
Marine Regulations
Air Services —
Administration
Control of Civil Aviation and Air Traffic Control.
Airports and Property Management
Construction Branch
Telecommunications and Electronics Branch
Meteorological Branch
Radio Regulations
Air Transport Board
Board of Transport Commissioners
Canadian Maritime Commission
Veterans Affairs —
Departmental and District Administration
Veterans' Treatment and Welfare Services, etc.
Canadian Pension Commission
Veterans' Land Act Administration
Total, Departments.
CROWN CORPORATIONS (Notes 1 and 2)
Atomic Energy of Canada Limited —
Head Office and Chalk River Administration. .
Nuclear Laboratories
Commercial Products Division
Whiteshell Nuclear Research Establishment
Power Projects
Temporary — Construction Workers, Nurses, etc
570
954
12
1,536
51
25
295
89
596
2,180
1,792
375
422
1,507
2,121
625
2,321
1,958
437
85
166
26
14,611
1,192
11,377
352
663
13, 584
193,601
561
963
13
1,637
60
25
314
104
15
8
526
550
477
573
623
426
444
49
46
96
174
3
2,118
2,230
61
61
3,873
4,058
596
2,109
1,869
387
420
1,514
2,170
625
2,359
1,992
433
84
167
26
14,751
1,143
11,358
338
657
13,496
194,911
456
453
1,795
1,784
281
351
51
181
210
227
69
109
S, 862
3,105
(9)
9
1
/
19
15
15
5
63
(73)
50
18
(3)
78
3
112
185
(71)
77
12
(2)
7
49
38
34
(4)
(1)
1
140
(49)
(19)
(14)
(6)
(88)
1,310
(3)
(ID
70
130
17
40
243
AUDITOR GENERAL'S REPORT
SUMMARY OF EMPLOYEES OF THE PUBLIC SERVICE— Continued
183
Employees authorized
March
1964
Increase
(Decrease)
Name of Department, Crown Corporation or
Other Instrumentality
Employees on Strength
March
1963
March
1964
Increase
(Decrease)
1,482
558
305
7,104
15
73
164
8,219
11
24
69
167
75
63
409
87
89,333
534
4
50
,076
97
33
(608)
19
17
286
(11)
7
9
1
21
49
152
47
60
85
20
56
(2)
(51)
6
CROWN CORPORATIONS (Continued)
Canadian Arsenals Limited —
Head Office
Filling Division
Explosives Division
Dominion Arsenals Division
Small Arms Division
Instruments and Electronics Division
Gun Ammunition Division
Canadian Broadcasting Corporation —
Head Office
National Engineering
Regional Offices
Foreign Offices
Northern and Armed Forces Services
International Service :
Canadian Corporation for the 1967 World Exhibition
Executive
Secretariat
Finance and Administration
Installations
Exhibitors
Operations
Canadian Commercial Corporation
Canadian National Railways — (Note 4)
General
Road Maintenance
Equipment Maintenance
Transportation
Other Operations
Canadian Overseas Telecommunication Corporation
Administrative
Head Office Engineering
Traffic Representatives
Operating
Canadian Patents and Development Limited
Centennial Commission
Central Mortgage and Housing Corporation —
Regular
Contract and casual
Crown Assets Disposal Corporation
Defence Construction (1951) Limited —
Administration
Engineers
Technical
Eldorado Aviation Limited
86
516
430
388
300
274
96
2,090
294
6,724
23
87
154
7,770
9
86
19,155
15,160
16,542
26,066
12,385
89,308
79
28
11
331
449
1,953
67
2,020
99
27
76
388
274
363
221
160
1,482
500
277
6,907
15
81
159
7,939
11
23
68
125
59
26
87
10,996
16,564
17,843
32,812
11,118
89,333
87
38
11
398
534
46
1,992
84
2,076
97
144
121
74
58
79
67
297
246
33
(10)
(128)
(156)
(25)
(79)
(114)
(96)
{608)
12
(17)
183
(8)
(6)
5
169
6
22
65
125
59
26
(Note 5)
10
67
85
40
39
17
56
(2)
(23)
(16)
(12)
(51)
184
AUDITOR GETSERAVS REPORT
SUMMARY OF EMPLOYEES OF THE PUBLIC SERVICE— Continued
Employees authorized
March
1963
March
1964
Increase
(Decrease)
Name of Department, Crown Corporation or
Other Instrumentality
Employees on Strength
March
1963
March
1964
Increase
(Decrease)
833
767
58
61
3
3
14
14
36
37
34
37
203
211
229
234
519
536
23
26
28
37
42
66
59
514
515
125
146
768
790
2,329
184
38
1,204
1,916
S,120
19
22
37
1,336
2,042
3,378
l,4W
18
{66)
1
3
8
5
17
(1)
2
5
(7)
1
21
(44)
(1)
132
126
(1)
CROWN CORPORATIONS (Continued)
Eldorado Mining and Refining Limited —
Head Office and General Administration.
Beaverlodge Division
Refinery and Sales
Research and Development
Export Credits Insurance Corporation.
Farm Credit Corporation-
Executive Officers
Branch Managers and Assistant Branch Managers.
Loaning Officers
Administrative, Accounting, Legal and Securities
Officers
Field Staff
Office Staff
The National Battlefields Commission.
National Capital Commission —
Administrative, Accounting, etc
Planning, Property Acquisition and Management
Landscape Architecture, Engineering, Construction
and Maintenance, etc
Prevailing rate — permanent and seasonal
Construction employees for specific works
National Harbours Board —
Head Office
Harbours and Elevators
Salaried
Prevailing rate
Northern Canada Power Commission-
Head and Regional Offices
Field Locations
Northern Transportation Company Limited.
Polymer Corporation Limited and Subsidiary Com-
panies —
Salaried
Hourly rate
The St. Lawrence Seaway Authority —
Administrative and Engineering
Operations
Maintenance
The Seaway International Bridge Corporation Limited
41
547
194
51
58
22
22
35
57
297
125
536
52
804
1,473
2,329
37
147
m
38
19
42
520
142
63
767
61
2
3
14
14
29
34
30
33
186
195
207
219
468
498
22
26
34
55
277
146
538
57
836
1,392
2,285
39
170
209
37
1,152
1,298
1,894
2,042
3,046
3,340
257
275
669
650
476
485
1,402
1,410
18
AUDITOR GENERAL'S REPORT
SUMMARY OF EMPLOYEES OF THE PUBLIC SERVICE— Concluded
185
Employees authorized
March
1963
March
1964
Increase
(Decrease)
Name of Department, Crown Corporation or
Other Instrumentality
Employees on Strength
March
1963
March
1964
Increase
(Decrease)
11,613
126,293
1,064
2,992
340,007
11,428
126,808
1,080
33
34
582
614
16
10
491
499
806
864
3,101
343,319
U90)
515
16
1
32
(6)
58
109
3,312
CROWN CORPORATIONS (Concluded)
Trans-Canada Air Lines —
Operations Department
Flying personnel
Other personnel
Sales Department
Purchases and Stores Department
Finance Department
All Other
Total, Crown Corporations
OTHER INSTRUMENTALITIES (Notes 1 and 2)
Bank of Canada
The Canada Council
The Canadian Wheat Board
The Custod ian
Industrial Development Bank
National Film Board
Total, Other Instrumentalities
Total, Departments, Crown Corporations and
Other Instrumentalities
1,445
1,254
6,084
6,180
2,733
2,638
576
556
465
474
310
321
11,613
11,423
125,575
1,064
2,922
322,098
125,902
1,080
33
34
582
614
16
10
491
499
736
780
3,017
323,830
(191)
96
(95)
(20)
9
11
(190)
327
16
1
32
(6)
44
95
1,732
NOTES:
(1) The figures appearing in these listings are based on the information provided by the various departments, Crown corpo-
rations and other instrumentalities. They include the numbers of seasonal, part-time and casual employees actually on
strength at March 31, 1963 and March 31 , 1964. For purposes of comparison these have been included in the figures shown
for "Employees authorized".
(2) Where no establishments have been authorized by the executive boards of certain Crown corporations or other instru-
mentalities, the totals of the actual strength figures have been shown in the "Employees authorized" columns for pur-
poses of comparison.
(3) The casual employees of the Department of National Health and Welfare in the regional offices are controlled on a
budgetary basis and the Department was unable to give the actual number of casual employees on strength at March 31.
(4) Effective January 1, 1963 a new method of counting employees was implemented in Canadian National Railways. The
average level of employment is derived from the sum of the total number of employees who work seven days or more in
the first semi-monthly pay period and the total number of employees who work seven days or more in the second semi-
monthly pay period divided by two, plus all employees paid once a month. Prior to 1963 the count was based on the num-
ber of employees who received pay cheques at the middle of the month.
(5) Effective January 1, 1964 a revised "Canadian Classification of Railway Employees" was implemented. Because of
changes in the composition of the major employee groups, comparisons between 1963 and 1964 are valid only when
made between total numbers of employees and not between specific employee groups.
186
AUDITOR GEHERAUS REPORT
APPENDIX 4
SUMMARY OF EXPENDITURE BY STANDARD OBJECTS
FOR THE FISCAL YEAR ENDED MARCH 31, 1964
(with comparable figures for the preceding fiscal year)
(in millions of dollars)
1963-64
1962-63
Increase or
decrease (— )
Civil salaries and wages
Civilian allowances
Pay and allowances, defence forces and Royal Canadian Mounted Police
Professional and special services
Travelling and removal expenses
Freight, express and cartage
Postage
Telephone, telegrams and other communication services
Publication of departmental reports and other material
Exhibits, advertising, films, broadcasting and displays
Office stationery, supplies, equipment and furnishings
Materials and supplies
Buildings and works, including land —
Construction or acquisition
Repairs and upkeep
Rentals
Equipment —
Construction or acquisition
Repairs and upkeep
Rentals
Municipal or public utility services
Contributions, grants, subsidies, etc., not included elsewhere
Pensions, superannuation and other benefits
All other expenditures (other than special categories)
Interest on public debt, etc
Subsidies and special payments to the provinces
Family allowance payments
Old age assistance, blind persons and disabled persons allowances and unemploy
ment assistance
Veterans' disability pensions, etc
Other payments to veterans and dependents
Government's contribution to the Unemployment Insurance Fund
Hospital insurance and general health grants
Trans-Canada highway contributions
Movement of mail by land , air and water
Deficits — Government-owned enterprises
Less: Expenditure recovered
Net total expenditure
908.3
17.9
613.0
97.0
63.1
10.9
5.9
36.2
9.7
14.1
27.0
179.8
210.4
62.1
17.2
300.3
161.3
6.4
70.3
860.6
226.1
144.9
993.7
254.3
538.3
171.8
173.2
94.3
59.3
445.2
39.2
65.5
55.2
,932.5
60.1
864.4
16.1
583.9
91.1
63.3
11.1
6.3
29.3
9.0
13.2
23.1
180.2
289.3
52.2
17.2
285.6
143.9
6.6
64.3
814.9
142.6
154.2
917.8
275.3
531.6
159.2
176.0
93.1
57.3
387.0
29.2
63.3
64.2
$6,615.8
45.5
$6,872.4
$6,570.3
EXHIBITS
(as published in the Public Accounts)
Statement of Expenditure and Revenue for the Fiscal Year ended March 31, 1964 . . Exhibit 1
Statement of Assets and Liabilities as at March 31, 1964 Exhibit 2
Summary of Appropriations, Expenditures and Unexpended Balances by Depart-
ments for the Fiscal Year ended March 31, 1964 Exhibit 3
Summary of Revenue by Main Classifications and Departments for the Fiscal Year
ended March 31, 1964 Exhibit 4
188
AUDITOR GETSERAVS REPORT
THE GOVERNMENT
STATEMENT OF EXPENDITURE AND REVENUE FOR
(with comparative figures for
EXPENDITURE
Fiscal year ended
March 31, 1964 March 31, 1963
Agriculture $ 225,681,474
Atlantic Development Board 196, 331
Atomic Energy 45,955,220
Auditor General's Office 1 , 258 , 359
Board of Broadcast Governors. 341,849
Canadian Broadcasting; Corporation 87,575,697
Central Mortgage and Housing Corporation 13,469,874
Office of the Chief Electoral Officer 11,875,892
Citizenship and Immigration 71,545,372
Civil Service Commission 5,224,776
Defence Production 41,564,748
Economic Council of Canada 164,824
Emergency Measures Organization 6,942,249
External Affairs 97,022,596
Finance —
Public debt charges 993,729,375
Fiscal, tax-sharing, subsidy and other payments to provinces 254,330,006
Other expenditure 158,375,231
1,406,434,612
Fisheries 23,716,314
Forestry 41,815,947
Governor General and Lie itenant-Governors 524, 159
Industry 696, 257
Insurance 1,435,005
Justice 40,995,992
Labour 280,383,807
Legislation 12,923,599
Mines and Technical Surveys 67,759,325
National Defence —
Royal Canadian Navy 297,972,475
Canadian Army 452,665,501
Royal Canadian Air Force 700,847,349
Defence research and development 46,053,342
Other expenditure 185,932,336
1,683,471,003
National Film Board 5,743,931
National Gallery 1,067,949
National Health and Welfare —
Family allowances 538,312,223
Other expenditure 665,542,374
1,203,854,597
National Research Council, including the Medical Research Council 47,259,773
National Revenue 82,995,521
Northern Affairs and National Resources 77,334,019
Post Office 206,894,516
Privy Council 2,929,115
Public Archives and National Library 1,112,723
Public Printing and Stationery 2,147,045
Public Works 167,000,704
Office of the Representation Commissioner 37, 006
Royal Canadian Mounted Police 66,899,479
Secretary of State 7,568,044
Trade and Commerce 73,584,061
Transport 423,257,874
Veterans Affairs —
Pensions 173,164,513
Other expenditure 160,575,368
333,739,881
Total expenditure 6,872,401,519
Budgetary deficit -619,197,480
$ 183,426,730
5,033
63,205,370
1,218,834
353,913
80,815,947
8,654,465
11,815,352
66,114,804
4,792,379
30,918,846
6,369,909
85,196,665
917,787,239
275,302,387
161,690,212
1,354,779,838
23,292,700
31,840,094
467,638
433,689
1,422,120
37,020,572
348,291,775
8,108,063
71,130,401
269,438,503
443,163,371
713,884,440
41,089,007
103,468,758
1,571,044,079
5,610,630
987,271
531,566,349
590,881,908
1,122,448,257
40,596,727
78,725,211
86,377,092
189,344,410
2,131,902
1,035,471
2,038,633
162,730,246
65, 424, 359 j
4,782,903
65,767,556
416,019,472'
175,901,737'
159,700,712
335,602,4491
6,570,341,805
-691,632,9271
6,253,204,039 5,878,708,878|
H. R. BALLS,
Comptroller of the Treasury.
R. B. BRYCE,
Deputy Minister of Finance\
AUDITOR GENERAL'S REPORT
189
EXHIBIT 1
OF CANADA
THE FISCAL YEAR ENDED MARCH 31, 1964
the preceding fiscal year)
REVENUE
Fiscal year ended
March 31 , 1964 March 31 , 1963
Tax revenues —
Income tax —
Personal") $1,865,073,635
Corporation"' 1,258,957,490
On dividends, interest, etc., going abroad 124,499,621
Excise taxes —
Sales") 946,054,797
Other 273,415,444
Customs import duties 581,441,461
Excise duties 393,326, 182
Estate tax «> 90,671,283
Miscellaneous 91,869
5,533,531,782
Non-tax revenues —
Return on investments 366,412,592
Post Office— net postal revenue 200,717,142
Refunds of previous years' expenditure 26,839,307
Services and service fees 51,321,056
Proceeds from sales 28,444,672
Privileges, licences and permits 27, 172, 568
Bullion and coinage 9,717,080
Premium, discount and exchange 232,234
Miscellaneous 8,815,606
719,672,257
$1,744,026,029
1,182,836,979
129,137,372
805,970,471
260,378,073
644,992,131
381,865,989
87,143,312
27,028
5,236,977,384
311,860,829
192,771,815
22,392,490
46,185,576
26,531,005
25,008,212
9,404,342
7,577,225
641,731,494
")Excluding tax credited to the old age security fund —
1963-64
Personal income tax 302,600,000
Corporation income tax 115, 750 , 000
Sales tax 331,760,067
1962-63
273,650,000
115,250,000
302,238,927
< 2) Includes duties levied under the Dominion Succession Duty Act.
Total revenue 6,253,204,039
5,878,708,878
Auditor General's Certificate
The above Statement has been examined in accordance with the provisions of the Financial Administration Act. I have
obtained all the information and explanations I have required and, subject to the comments in my report to the House of
Commons, I certify that the Statement is in agreement with the accounts maintained by the Department of Finance and that,
in my opinion, it exhibits a correct view of the expenditures and revenues of Canada for the year ended March 31, 1964.
A. M.
HENDERSON,
Auditor General.
190
AUDITOR GENERAL'S REPORT
THE GOVERNMENT
STATEMENT OF ASSETS AND
(with comparative figures
ASSETS
March 31, 1964
1. Current assets —
(a) Cash, schedule A $ 984,642,872
(b) Departmental working capital advances and revolving
funds, schedule B 168,806, 488
(c) Securities held for the securities investment account at
amortized cost 99,859,788
(d) Other current assets, schedule C 33 , 753 , 992
1,287,068, 140
2. Advances to the exchange fund account — (value of investments
from advances on basis of official parity rate March 31,
1964, $2,631,200,188; closing exchange rate March 31, 1963,
$2,757,046,289) 2,601,000,000
3. Sinking fund and other investments held for retirement of
unmatured debt, schedule D
4. Loans to, and investments in, Crown corporations, schedule E. 4,584,194,507
5. Loans to national governments, schedule F 1,195,684,799
6. Other loans and investments, schedule G
(a) Subscriptions to capital of, and working capital advances
and loans to, international organizations 702, 130,003
(6) Loans to provincial governments 113,651,578
(c) Veterans land act advances (less reserve for conditional
benefits) 216, 970,307
(i) Miscellaneous 165,064, 212
1,197,816,100
7. Securities held in trust, schedule H 38,881,823
8. Deferred charges —
(a) Unamortized portions of actuarial deficiencies —
Canadian forces superannuation account
Public service superannuation account 276,661,000
Royal Canadian Mounted Police superannuation account
(b) Unamortized loan flotation costs, appendix No. 7 123,699,586
400,360,586
9. Suspense accounts, schedule 1 141 , 392
10. Capital assets 1
11. Inactive loans and investments, schedule J 94,824,381
Total recorded assets 11,399,966,729
12. Less: Reserve for losses on realization of assets —546,384,065
Net recorded assets 10,853,582,664
13. Net debt, represented by excess of liabilities over net recorded
assets, schedule K 15,070,149,452
25,923,732,116
March 31, 1963
$ 511,347,154
243,267,010
33,480,163
32,316,719
820,411,046
2,736,000,000
22,311,845
4,468,119,368
1,210,776,466
693,997,679
116,817,626
196,018,731
103,820,343
1,110,654,379
26,016,103
524,849,000
276,661,000
3,533,000
131,601,094
936,644,094
136,100
94,824,381
11,425,893,783
-546,384,065
10,879,509,718
13,919,769,972
24,799,279,690
Net increase
or decrease (— )
during 1963-64
473,295,718
-74,460,522
66,379,625
1,437,273
466,652,094
-135,000,000
-22,311,845
116,075,139
-15,091,667
8,132,324
-3,166,048
20,951,576
61,243,869
87,161,721
12,865,720
-524,849,000
-3,533,000
-7,901,508
-536,283,508
5,292
-25,927,054
-25,927,054
1,150,379,480
1,124,452,426
The notes appearing on page 6 are an integral part of this Statement of Assets and Liabilities.
H. R. BALLS,
Comptroller of the Treasury.
R. B. BRYCE,
Deputy Minister of Finance.
(The schedules and the appendix referred to in the above Statement, and the pages referred to
in the two notes, are to be found in the Public Accounts, Section 7 of Volume 1)
I
AUDITOR GENERAL'S REPORT
191
EXHIBIT 2
OF CANADA
LIABILITIES AS AT MARCH 31, 1964
as at March 31, 1963)
LIABILITIES
March 31, 1964
14. Current and demand liabilities, schedule L
(a) Outstanding treasury cheques _ $ 319,894,410
(6) Accounts payable (that portion paid in April of the next
following fiscal year) 342,673,020
(c) Non-interest-bearing notes payable to the international
monetary fund and the international development associa-
tion 586,996,025
(d) Matured debt outstanding 26,820,209
(e) Interest due and outstanding 91,893,489
(/) Interest accrued 215,973,372
(g) Other current liabilities 35,710,909
1,619,961,434
15. Deposit and trust accounts, schedule M 196, 454, 123
16. Annuity, insurance and pension accounts, schedule N 5,131,053,811
17. Undisbursed balances of appropriations to special accounts,
schedule O 111,601,270
18. Deferred credits, schedule P 119,446,821
19. Suspense accounts, schedule Q 5,117,628
20. Unmatured debt, schedule R
(a) Bonds 16,510,097,029
(b) Treasury bills 2,230,000,000
18, 740, 097, 029
Note:
The indirect or contingent liabilities of the Government of
Canada, consisting of railway securities guaranteed as to
principal and interest, $1,377,611,480; other guarantees of
$5, 950, 662, 777; together with certain indeterminate guarantees,
are listed on page 73.
March 31, 1963
Net increase
or decrease ( — )
during 1963-64
266,548,686 $
267,364,119
757,284,519
32,466,821
79,460,893
196,973,991
31,379,226
1,631, 478, 255
225,202,751
4,747,016,868
119,951,698
107,739,147
6,054,640
15,796,836,331
2,165,000,000
17,961,836,331
53,345,724
75,308,901
-170,288,494
-5,646,612
12,432,596
18,999,381
4,331,683
-11,516,821
-28,748,628
384,036,943
-8,350,428
11,707,674
-937,012
713,260,698
65,000,000
778,260,698
Total liabilities.
25,923,732,116
24,799,279,690
1,124,452,426
Auditor General's Certificate
The above Statement has been examined in accordance with the provisions of the Financial Administration Act. I have
obtained all the information and explanations I have required and, subject to the comments in my report to the House of
Commons, I certify that the Statement is in agreement with the accounts maintained by the Department of Finance and that,
in my opinion, it exhibits a correct view of the financial position of Canada as at March 31, 1964.
A. M. HENDERSON,
Auditor General.
192
AUDITOR GENERAL'S REPORT
EXHIBIT 3
SUMMARY OF APPROPRIATIONS, EXPENDITURES AND UNEXPENDED BALANCES
BY DEPARTMENTS FOR THE FISCAL YEAR ENDED MARCH 31, 1964
Section
Department
Appropriations
Expenditures
Unexpended Balances
Lapsed
Carried
forward (1)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
Agriculture
Atlantic Development Board
Atomic Energy
Auditor General's Office
Board of Broadcast Governors
Canadian Broadcasting Corporation
Central Mortgage and Housing Corporation
Office of the Chief Electoral Officer
Citizenship and Immigration
Civil Service Commission
Defence Production
Economic Council of Canada
Emergency Measures Organization
External Affairs
Finance
Fisheries
Forestry
Governor General and Lieutenant-Governors..
Industry
Insurance
Justice
Office of the Commissioner of Penitentiaries.
Labour
Legislation
Mines and Technical Surveys
National Defence
National Film Board
National Gallery of Canada
National Health and Welfare
National Research Council, including the Medical
Reseaich Council
National Revenue
Northern Affairs and National Resources
Post Office
Privy Council
Public Archives and National Library
Public Printing and Stationery
Public Works
Office of the Representation Commissioner
Royal Canadian Mounted Police
Secretary of State
Trade and Commerce
Transport
Canadian Maritime Commission
National Harbours Board
Veterans Affairs
231
45
1
87
13
11
72
5
42
10
99
1,417
24
45
1
1
14
31,
(2)362,
13,
71,
1,728,
5,
1,
1,205,
,075,932
352,500
968,600
335,867
362,731
644,900
497,274
881,701
733,672
321,890
609,117
167,000
129,340
821,148
056,452
996,794
777,416
541,550
375,033
437,266
172,978
702,935
382,615
052,790
056,872
882,707
744,000
082,400
902,092
48,109,800
84,894,871
86,828,063
207,908,369
3,275,009
1,144,748
2,236,226
176,419,791
37,006
67,560,231
8,673,139
74,283,763
397,625,10"
49,840,904
4,162,900
340,242,850
< 3 >7, 101,308,355
225
45
1
87
13
11
71
5
41
6,
97,
1,406,
23,
41,
1
13
27
280
12
67
,683
5
1
,203
681,474
196,331
955,220
258,359
341,849
575,697
469,874
875,892
545,372
224,776
564,748
164,824
942,249
022,596
434,612
716,314
815,947
524,159
696,257
435,005
953,639
042,353
383,807
923,599
759,325
471,003
743,931
067,949
854,597
47,259,773
82,995,521
77,334,019
206,894,516
2,929,115
1,112,723
2,147,045
167,000,704
37,006
66,899,479
7,568,044
73,584,061
373,173,445
49,744,669
339,760
333,739,881
6,872,401,519
$
5,394,458
156,169
13,380
77,508
20,882
69,203
27,400
5,809
1,188,300
97,114
1,044,369
2,176
3,187,091
2,798,552
10,621,840
1,280,480
3,961,469
17,391
678,776
2,261
219,339
4,660,582
27,085,808
129,197
3,297,547
45,411,704
69
14,451
2,047,495
850,027
1,899,350
9,269,044
1,013,853
345,894
32,025
89,181
9,419,087
660, 752
1,105,095
699,702
24,451,662
96,235
3,823,140
6,502,969
173,768,836
54,913,000
225,000
55,138,000,
'"Available for expenditure in 1964-65.
(2 'Includes amount carried forward from 1962-63 appropriations $26,737,268.
(3 'In addition, parts of appropriations in respect of the following departments and expenditures in similar amounts were)
transferred to "Other Loans and Investments", as follows: Agriculture 83,585,219 and National Health and Welfare §4,000.
H. R. BALLS,
Comptroller of the Treasury.
Auditor General's Certificate
The accounts relating to the expenditures as set forth in the above Statement have been examined under my direction!
and, subject to the comments in my report to the House of Commons, I certify that, in my opinion, the Statement gives a!
correct summary for the year ended March 31, 1964.
A. M. HENDERSON,
Auditor General.
CThe sections referred to in the above Summary are those in the Public Accounts, Volume II)
AUDITOR GETSERAVS REPORT
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BWDING SECT. OCT 1 4 1981
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